Foreign investors are being “crowded out” of the Indian stock market because the demand from local investors is strong, says Herald Van Der Linde, Head of Asia Equity Strategy at HSBC.

The inflow of foreign funds into India has also slowed down because of the high valuations of Indian stocks

As a result, these investors tend to hold larger positions in China, even though their sentiment towards China is ‘almost neutral’.

He is positive on emerging markets (EMs) and Asian equities in general.

“So, the outlook for EM could be okay, but for Asia, it’s going to be quite picky. And so, it is going to go to idiosyncratic stories and sectors; for example, Malaysia, where the power consumption is good because data centres are being built. Indonesia has lower interest rates. So, people are trying to dig deeper, and shift through the rubble to find interesting equity stories around the region,” he added.

He believes there is potential for a slight weakness in US the dollar in the coming quarters. This will favour emerging market assets over the next 12 months.

Also Read: Emerging market funds continue to flow into India, albeit at a slower rate, says Cameron Brandt

Discussing the uncertainties surrounding the current surge in investments related to artificial intelligence (AI), Van Der Linde said that while there is a massive global capital expenditure (capex) of around $1 trillion in AI, there are still doubts about whether these investments will lead to an equivalent amount in profits.

Van Der Linde’s view differs from that of global expert Mark Matthews of Julius Baer & Co., who expects a profit boost from AI for global tech giants over the next six months.

Also Read: Which Indian mutual funds invest in Nvidia shares? Take a look at their exposure

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