Despite the recent downgrade by Fitch for the US outlook, it should have little impact on the markets. The issues referred to were already known, such as the high debt ceiling and deficits, even a global risk-free alternative to US treasuries has yet to be found. India is still expected to outperform, despite a possible pause or correction. First Global, which rebalances quarterly, has seen an increase in weightage in the healthcare sector on the pharma side, in addition to capital goods and industrial machinery alongside increased weightage also found in auto, auto components, and a couple of construction names.
The soft outlook on IT is being compensated by pharma exports, says Vinod Karki, ICICI Securities equity strategist. He adds that while the Indian IT services sector doesn t have any structural issues, resetting itself is painful, with short-term uncertainty. However, the investment cycle aided by real estate and manufacturing cycles give confidence that future demand will be sustained, meaning the earnings downgrade cycle will not be there.
The pharmaceutical sector in India is showing strong domestic growth of 7% to 9%, despite flat global growth in the US and Europe, according to pharma expert Kewal Handa. He sees good opportunities for Indian companies in the US, as a significant number of patents are set to expire in the next five years. Biosimilars and the application of artificial intelligence in R&D are expected to be major growth areas, and Handa predicts double-digit growth next year.