Manishi Raychaudhuri, a prominent market analyst, views the recent selloff in Asian tech stocks as a buying opportunity, despite the turmoil triggered by multiple global factors. However, he highlights a more complex issue for India, where earnings growth is faltering.
Three key factors converged to cause the selloff in Asian tech stocks. Broadcom's chip revenue guidance, although strong at nearly $16 billion with 200% growth, fell short of market expectations. Additionally, a stronger-than-expected US non-farm payrolls report has raised fears of an imminent rate hike by the Federal Reserve. Renewed military tensions between Israel and Iran have also led to a spike in oil prices, adding to macroeconomic concerns. Consequently, tech-heavy markets in Korea and Taiwan experienced significant declines.
Despite the selloff, Raychaudhuri remains optimistic about the fundamentals of Asia's tech sector. He notes that AI capital expenditure demand remains robust, and semiconductor and memory prices are stable. Earnings estimates for Asia's chip sector continue to show upward momentum, indicating that the current sentiment shift is temporary.
“I would rather treat this correction as a buying opportunity.”
Manishi Raychaudhuri
In contrast, India's market faces structural challenges. The Nifty and Sensex are trading at a premium of approximately 30% over broader Asia ex-Japan markets, but this premium has decreased from a peak of 87% in September 2024. More concerning is the decline in corporate earnings growth estimates for FY27, now at 9% to 9.3%, down from 16% nine months ago. This trend is opposite to the upward revisions seen in China, Taiwan, and Korea.
Raychaudhuri emphasizes the need for India's earnings growth to return to double digits and for market confidence in these estimates to stabilize. A subdued domestic consumption environment, driven by a lackluster employment situation, further complicates the outlook.
Despite these challenges, Raychaudhuri remains positive on large private sector banks in India. He argues that any meaningful economic growth will require financing from banks, and private sector banks are gaining market share through superior technology and customer acquisition. HDFC Bank, for instance, now trades at a more reasonable two times price-to-book ratio.
Background
The recent selloff in Asian tech stocks was influenced by Broadcom's revenue guidance, US payroll data, and geopolitical tensions. Despite this, the fundamentals of Asia's tech sector remain strong, contrasting with India's structural earnings challenges.
India's market story is not broken, but it requires stronger earnings growth to regain its competitive edge. Investors should watch for improvements in earnings estimates and domestic consumption trends to gauge future market directions.
