Vincent Mortier

Since the start of the year, some of the key convictions highlighted by Amundi, Europe’s largest asset manager, have been playing out and some trends have accelerated.

According to Vincent Mortier, Group CIO, Amundi,” We are witnessing a regime shift characterised by heightened policy uncertainty and a distinct break in the international order. These key themes were highlighted at the Davos World Economic Forum and confirmed at the Munich Security Conference.

“Tariffs remain a key tool for the redesign of the new order. The recent Supreme Court ruling against Trump’s emergency tariffs introduced an additional layer of uncertainty to the policy landscape.

“All these developments confirm that the overall geo economic environment is in transition. President Lagarde’s mention in her speech of the ECB’s new repo facility for central banks outside the euro area signifies how policymakers are thinking about the rising importance of geoeconomics.

“We are clearly entering a more complex market equilibrium, where policy, including trade policy, geopolitics, and capital allocation are as critical as the economic cycle itself. With growth proving more resilient than initially expected and corporate profitability remaining robust, markets have remained well sustained.

“However, significant rotations are underway across countries, sectors, and individual stocks as the environment adjusts to the ongoing regime shift.

“We think diversification and flexibility will continue to be key in enhancing portfolio resilience and long-term returns.

“We see a late cycle environment continuing this year and therefore maintain a moderate risk on stance. Within this stance, we expect a rotation towards real economy sectors such as industrials and dispersion across regions and asset classes.

“Secondly, high valuations of risk assets constrain our ability to raise our risk stance. Valuations alone, however, are unlikely to trigger a major correction. Instead, triggers would more likely arise from liquidity tightening or a deterioration in credit conditions.”

In a fast changing world, please see the attached paper for more details, with contributions also from Monica Defend, Head of Amundi Investment Institute and Philippe d’Orgeval deputy group CIO as they relook at their key investment convictions.

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Monica Defend

The global economy is adjusting to a regime of ‘controlled disorder’, where a tech revolution is reshaping an already multipolar world faced with geopolitical tensions and fiscal concerns, according to Amundi, Europe’s largest asset manager.  Geopolitics, the policy mix and higher inflation have become structural factors, and these concurrent long-term shifts will alter how the economic and financial cycle unfolds in 2026.

In its 2026 global investment outlook, the firm notes “The cycle keeps extending, supported by perceived ample liquidity, easing monetary policies, industrial policy shifts, and –so far– low pass-through of tariffs in the economy.  Multiple factors could reverse it, spanning from adverse events related to high levels of public debt in major economies, high market concentration and valuations, the credibility of central banks and where real rates may stabilise.

“Massive AI and Tech-related capex and a decent outlook for earnings could keep valuations higher for longer, but the shifts at play also point to higher structural risks and unpredictable turns in trade and capital flows.”

Monica Defend, Head of Amundi Investment Institute, says “The global economy is adapting to a new regime of “controlled disorder”.  Tech-led transformation, fiscal stimulus and industrial policy are keeping activity alive and leading to the emergence of new winners. Inflation becomes a structural theme investors must also factor into their allocations”.

Vincent Mortier, Group CIO of Amundi, adds “Diversification remains the most effective defence in a world of concentrated equity markets and high valuations. Investor portfolios must rebalance across styles, sectors, sizes and regions to mitigate risks and capture opportunities, notably in Emerging Markets and European assets.”

They note the following.

Central scenario: A transition, not a downturn

 In 2026, dovish central banks and global investment in tech, defence, and infrastructure, should continue to inject momentum into a phase of the cycle that would otherwise begin to slow.

• Global growth is moderating but proves broadly resilient, thanks to innovation led by capex and policies aimed at strategic autonomy.  Inflation risks persist due to pro-cyclical policies, ceaseless reconfiguration of supply-chains and challenges from the energy transition. Broadly appropriate monetary policy is increasingly pressured by fiscal dominance.  We forecast global GDP growth at 3.0% in 2026 and 3.1% in 2027 (from 3.3% in 2025), with DM at 1.4% and 1.6% on average, and EM at 4.0% and 4.1%.
• US growth should experience a shallow slowdown in the coming quarters, before picking up to reach 1.9% in 2026 and 2.0% in 2027, remaining below potential.  The current pace of AI and Tech-related investment seems unsustainable and should moderate before broad productivity gains materialise. Consumption should remain a key driver of the economy but moderate, due to above-target inflation, weaker income and labour market dynamics, where evidence shows that low-income households are facing constraints on affordability.  We expect the Fed to cut twice in the first half of 2026, to 3.25% and the USD to weaken, but the journey will not be linear.
• In Europe, we expect growth to remain below potential at 0.9% in 2026, then to recover at 1.3% in 2027, both in the Eurozone and in the UK.  The European journey depends on domestic demand, monetary-policy support and on the effective implementation of prospective reforms.  The aim of the latter is to transform the macro-financial system and to drive private investment towards strategic autonomy over the medium term.  The German plan is a game changer, but the region’s aggregate fiscal stance should stay neutral as high debt levels and fiscal rules push many countries towards consolidation.  Higher defence spending could further support the recovery.  We anticipate the ECB will ease beyond current market expectations, to 1.5% by mid-2026, and the BoE will bring down rates to 3.25%.
• Emerging Markets assets offer broad opportunities. EM has benefited from easier global financial conditions, balanced domestic policies and front-loaded export demand in 2025.  Growth will likely stabilise but keep outpacing that of developed economies.  Cautious monetary easing should continue, with no signs of fiscal dominance.  Asia will remain the primary growth engine, despite moderating growth in China (4.4% and 4.2%) and India (6.3% and 6.5%).  In LatAm, a series of elections could usher in more business-friendly administrations.  Structural forces are also at play: geopolitical realignment, supply‑chain reconfiguration and an intensifying technological race, in which Asia stands out.
• Risks to our central scenario stem from multiple fronts.  They are significant on the downside, but we also see some upside.  Adverse (geo)political or financial shocks – including fiscal dominance or financial repression – could trigger a market downturn, for example by de-anchoring expectation as to what level inflation or interest rates will stabilise, by disappointing on business performance or investments, or by tightening liquidity.  Conversely, reduced geopolitical or tariff tensions, higher fiscal- or deregulation-led investments or broader signs of AI-related productivity gains would improve the outlook.

Investment implications: Diversifying in an era of controlled disorder

Under the assumption of no economic recession in 2026, our call is moderately pro-risk.  Our allocation seeks to play growth through the tech-led recovery globally while diversifying into low‑correlated themes and a range of strategic hedges.

• In Fixed Income, we see a continuation of the diversification trend and are mindful of risks stemming from imbalances in the US.  The current backdrop calls for a tactical approach to duration and a neutral-to-slightly-short stance on sovereigns.  Quality credit becomes a core allocation for fixed income investors to diversify away from Treasuries, and it is clearly overweight.  We remain cautious on US High Yield and Japanese government bonds.  A positive stance on European bonds remains a key call for 2026, with a focus on peripheral bonds and short maturities, UK Gilts and investment grade credit, particularly in financials.  While sticky inflation calls for seeking opportunities in inflation break-evens.
• In Equities, sector and style allocation will drive performance in 2026.  We favour exposure beyond the AI-race into the broadening tech theme – including power energy, computing, materials needed to overcome physical constrains that are building – and a combination of defensive and cyclical themes.  We are overall neutral on US equities despite the Fed’s procyclical stance and will add on our equal-weighted approach given market concentration and high valuations.  European industrials and infrastructure should provide new entry points in H2 2026 to benefit from a structurally weaker USD and longer-term themes (defence spending, electrification and repatriation of assets from the US) and revived interest in the Eurozone if the German plan materialises and reforms advance. We are positive on European Financial, Industrial, Defence and Green-transition sectors, as well as on small and mid-caps.  Europe can still play the tech cycle through Industrials and Capital Goods.  We also seek opportunities into the expanding Asian tech ecosystem.  Japan can also benefit from the corporate reform and weaker Yen.
• We are overall positive on Emerging Assets.  EM bonds stand out for high income and diversification, while EM equities offer a diversified set of opportunities.  We like attractive yields in Hard Currency debt.  In Local Currency debt, we favour Central and Eastern Europe, selective parts of LatAm (Columbia, Brazil) and Asia (India, Philippines and Korea) for carry and valuation.  We are positive on EM equities and see notable pockets of opportunities favouring value and momentum styles in LatAm and Eastern Europe and selectively in Asia, in sectors linked to digital assets.  In Chinese equity, we expect to move from neutral to select positions in the tech sector and areas of clear comparative advantage (EV supply chain, renewable energy).  We are positive on India with a medium term horizon where the ‘Make in India’ transformation offers long term growth potential in many fields (manufacturing, consumption, infrastructure, global supply-chain shifts, financial inclusion technologies).  Key risks across EMs are a stronger US dollar and higher US Treasury yields.
• Diversification & Hedges. For real-return resilience, we favour greater allocation to alternative income and inflation hedges in real assets.  Private credit and infrastructure are well positioned to benefit from structural themes such as electrification, reshoring, AI, and robust demand for private capital, particularly in Europe.  Diversification should also structurally include a broader commodities exposure, in particular to gold, and selected currencies such as JPY, EUR, and emerging currencies that may benefit from a weaker dollar.  We favour high-carry currency such as the Brazilian Real or South African Rand and Asia.

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Monica Defend

Emerging market equities are positioned to outperform developed ones over the next decade according to Amundi, Europe’s largest asset manager.

The US-China tech rivalry will particularly benefit India due to its growing start-up ecosystem and role as an alternative innovation hub, noted Monica Defend, Head of Amundi Investment Institute and Chief Strategist

“In this environment, equity investors will have to cope with greater trade protectionism and regional rivalry, delayed climate transition, and technological transformation in the next decade. We believe sector allocation will be crucial for investors, with Artificial Intelligence supporting IT and Healthcare, capital expenditure trends favouring Industrials over Consumer sectors, and deregulation policies benefiting Financials across different regions,” added Defend.

“We expect emerging market equities to outperform developed ones over the next 10 years, with variations across countries. While the outlook for Chinese equities has improved because Beijing’s policy support has restored some confidence to markets, their performance will depend on domestic policy measures and US trade policies. Our central scenario assumes fiscal support will offset the economic impact of the current tariffs on US imports from China, but these expectations will be tested if the US administration hikes them back towards their recent peaks.”

Indian equities continue to top the equity expectations scoreboard at 8.2% annualised returns, with robust earnings growth prospects outweighing stretched valuations. The Indian market appears better insulated from tariff pressures that are hitting Asian factory hubs like Vietnam and Indonesia.

Moreover, India is emerging as a beneficiary of the ongoing tech rivalry between the US and China. Multinationals looking to diversify their supply chains are turning to India as an attractive alternative innovation destination. India’s rapidly growing start-up ecosystem is also appealing to global investors looking for new growth opportunities. “Demographics and a rising middle-class further bolster India’s appeal,” said Defend.

The outlook for European equities is supported by improving earnings growth, relatively favourable valuation levels, and reforms to boost productivity and restore competitiveness – as detailed in the Draghi and Letta reports.

“Germany’s recent fiscal push could further drive the area’s appeal, beyond our 7.5% return expectation.

“The Pacific shares a similar positive outlook. Japanese equities are benefitting from improved corporate governance, driving higher shareholder returns. Moreover, the end of the country’s long battle with deflation should support further rerating of its equity market.”

Defend said, “At the sector level, Artificial Intelligence will continue to support Information Technology, followed closely by Healthcare, with the benefits gradually extending to other sectors. The democratisation of AI and rotation from ‘hyperscalers’ to ‘enablers’ in the software sector should help boost global productivity and long-term equity returns.

“Climate change and geopolitical dynamics will favour capital expenditures, benefiting Industrials more than Consumer Staples and Discretionary sectors. Energy, Materials, and Staples face the most negative impact from climate change and ESG considerations, while Utilities fare slightly better but remain below regional market averages.

“Policy changes supporting deregulation should improve capital efficiency and shareholder returns, particularly benefiting the Financial sector. This support will manifest differently across regions – through deregulation in the United States, unwinding of cross-company shareholding in Japan, and high shareholder returns in the Eurozone.

“For investors, this trend points to the need to seek opportunities in emerging markets, Europe, and the Pacific ex-Japan region.”

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Monica Defend

Markets have cheered any good news emerging in 2024 from the economy, corporate earnings and the political environment, although occasionally they were caught by surprise. Looking ahead, they will be driven by earnings momentum, a scenario of slowing US growth and rebalancing labour markets but not drastically weakening, according to Amundi, one of Europe’s largest investment managers.

“On the other hand, the Fed getting a bit more hawkish and Trump’s approach to trade along with the international response could create volatility. Outside the US, European growth and policymaking and China’s response to its domestic problems will drive the markets,” notes Monica Defend, Head of Amundi Investment Institute and Chief Strategist.

“In particular, we see the following factors as key drivers of the global economy:

• US growth resilient but still on a declining path and subject to uncertainty on Trump policies. Recent data are pointing towards better fundamentals in the economy, but the overall growth trajectory doesn’t change.
• European growth struggling to stay on course. Governments’ attempts to impose fiscal consolidation (France, Germany) are clouding the growth outlook. In Germany, we could see a loosening of the debt brake, but it would only be gradual and the economic impact would be seen from 2026.
• Uncertainty around the Fed, while the ECB is expected to be more dovish due to inflation falling faster. We have decreased ECB’s terminal rate expectations by 50bps to 1.75%, to be reached by July 2025. The Fed delivered a hawkish cut, meaning it has very close eyes on inflation.
• Chinese announcements are big on intent. While the main points revolve around expanding the fiscal deficit and boosting domestic demand, we would like to see details about how the government intends to do it.”

“We think liquidity in markets is ample, credit conditions robust, and the profit environment reasonable. But the most important factors preventing us from significantly raising our risk stance are valuations and risks to earning revisions. We keep a mildly constructive view.”

“We see cross-asset, modestly risk-on heading into 2025 with hedges in place. Economic growth in the US and Europe is reasonable, and inflation is slowing, painting a supportive backdrop for risky assets. We have strengthened our positive stance on US equities and turned constructive on Europe, while also maintaining a small positive view on the UK and Japan. We also continue to search for opportunities in emerging market (EM) bonds, in particular in the Czech Republic, South Africa, and Indonesia. To counterbalance this overall pro-risk allocation, we maintain a positive duration bias as a hedge against potential deterioration in the growth outlook. We have also added some equity hedges and keep gold as a diversifier.

“Fixed income as an asset class will be increasingly affected by uncertainty around fiscal and monetary policies. As a result, we maintain a tactical approach to duration in the US and Europe, where we continue to look for opportunities on the expected steepening of the yield curves. In the UK, we are positive but are monitoring the recent strong inflation and wage growth data, while in Japan bonds, we remain cautious. In the credit market, we continue to favour investment grade, in particular in Europe, where valuations look more attractive. In contrast, we are cautious on US High Yield.

“In equities, diversification is the name of the game, as concentration risk remains the top concern. In the US, we remain cautious on the mega caps and explore opportunities down in the capitalisation spectrum in companies that could benefit from a resumption in industrial demand and economic growth but where the valuations do not yet reflect this.

“We also think the rally broadening towards more US value, cyclical stocks will benefit from an uptick in economic activity. In Europe, we favour banks that are less sensitive to rate changes and have strong capital buffers vs. those more sensitive to rate reductions.

“Any dollar strength and rise in geopolitical risks will likely create volatility for EM, but their growth potential is strong and central banks are prudent. We aim to explore resilient bottom-up stories that are driven by domestic consumption themes in debt and equities.”

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Monica Defend

The election of Donald Trump has brought renewed focus on inflation and its potential ripple effects on global markets. Over recent months, the combination of a resilient US economy, Trump’s anticipated victory, his key appointments, and inflation risks have driven shifts in nominal and real yields. Meanwhile, US equities and the dollar have surged, buoyed by optimism that Trump’s policies may bolster the US economy—though perhaps at the expense of Europe and parts of Asia.

Presenting their insights in the latest ‘Amundi Global Investment Views’, Monica Defend, Head of the Amundi Investment Institute and Chief Strategist, and Vincent Mortier, Group CIO noted, “while US policies will inevitably reverberate across European assets and emerging markets, their actual impact hinges on specific measures and countermeasures.”

“Tax cuts and deregulation proposed under US fiscal policy could provide a growth boost through 2025, but we anticipate they may weigh on growth in 2026. The rising fiscal deficit and national debt are significant concerns and could exert additional upward pressure on bond yields.

“On inflation risks, the Federal Reserve is walking a tightrope as it addresses the final stages of inflation. Policies around immigration control and import tariffs could exacerbate wage and price pressures. This may push the Fed to adopt a more data-dependent approach, likely easing less than currently expected. Such moves will also have ripple effects on global central banks, including the ECB.

“Balancing fiscal governance rules in the EU with the need to invest in productivity, competitiveness, and defence will be no small feat. Countries like Germany, France, and Italy will need to navigate these competing priorities carefully, especially in the post-election environment.

“China is unlikely to take a passive stance in response to US policies. We expect proportionate measures such as fiscal stimulus, export controls on critical minerals, or even devaluation of the yuan as part of their strategy to counter US trade actions.”

The combination of high asset valuations, rising bond yields, and inflation risks has created a challenging environment for risk assets. These factors support a continued rotation toward more attractively priced market segments. Defend and Mortier emphasised the importance of balancing market fundamentals with valuations and policymaking expectations.

They present the following investment overview:

Cross asset: we have upgraded US equities by turning positive on US mid-caps. US stocks should benefit from a combination of positive sentiment stemming from a growth impetus, potential deregulation and favourable tax policies. We also remain marginally positive on the UK and Japan. In fixed income, we remain constructive on US and EU duration and have raised our curve-steepening expectations. We think gold still holds the potential to offer portfolio stability. In addition, investors should consider maintaining safeguards on equities and duration, if US inflation surprises on the upside.

Duration is all about granularity and taking yield volatility into account: in the US, where we are close to neutral on duration, we think there is good value in the intermediate part of the yield curve. But we have tactically downgraded core European duration to neutral, and see political uncertainty persisting in the near term. In US credit, we remain tilted towards quality, and in securitised credit, we prefer high-quality AAA-rated debt in commercial real estate. Our stance is unchanged for EU credit.

Gains in US equities despite rising real yields indicate high market expectations: it is worth looking beyond over-priced stocks. The actual impact on growth would depend on the degree to which Trump’s agenda is implemented. Instead of playing this positive sentiment through expensive large caps, we prefer to rely on areas that display better valuations, such as S&P equal-weighted, value and quality. In Europe, stock picking is likely to gain importance, as weak domestic demand meets uncertainty on international trade.

Emerging markets are home to many uncorrelated bottom-up stories, but US rates are a risk: thus, we remain vigilant and selective, preferring countries such as Turkey and South Africa in local currency debt. In hard currency and corporate credit, we are positive. In equities, we are slightly less constructive on Brazil but remain positive on Indonesia and India.

“As markets adjust to Trump’s agenda and inflation risks unfold, the focus will remain on how global policies evolve and how markets respond. Investors are urged to stay vigilant and flexible, balancing exposure to attractive opportunities with robust risk management. The coming months promise to be pivotal as the world watches how the interplay between US policies, inflation, and global markets shapes the investment landscape,” they concluded.

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Monica Defend

The Amundi Investment Institute has released a white paper that explores the impact of Artificial Intelligence (AI) on various investment sectors and the winners and losers from this revolution.

Vincent Mortier, Group CIO, and Monica Defend, Head of Amundi Investment Institute noted “We believe that AI could have over the long-term a positive impact on productivity and GDP growth.

“However, the impact will not be linear across sectors, especially in the early phases. Those companies that are already investing heavily in AI technologies are the most likely to see benefits to revenues and/or profitability, but disappointments will happen given increased and new competitive pressure as well as the emergence of questionable business cases in light of the involved costs.

“With rising expectations around AI, the tech sector and US mega caps have outperformed strongly in recent times, leading to higher market concentration. In particular, the US tech companies have risen by 300% since the start of 2019, whereas non-tech stocks gained just 79%. This poorly discriminated

performance has been driven by robust earnings growth in the US Mega Cap, a supportive economic backdrop and the launch of ChatGPT 3.5 (2023) that led to a cycle of investment in AI technologies. Investors may need to consider a potential reset of the tech sector’s valuation levels and determine the companies which are likely to be the future winners and losers across the market.

“To help identify such companies we use a framework which categorises them into four AI types: tech providers, tech enablers, deployers and disruptors.

“The AI tech providers (e.g. semiconductor companies) are the early winners that are well-positioned to exploit the robust AI demand, while the AI tech enablers (e.g. hyperscalers/cloud providers, data centres) are heavy investors in Al, purchasing the majority of the leading-edge AI graphics processing units (GPUs). The AI deployers are those businesses that are already leveraging AI to transform their businesses whereas the AI disruptors are new entrants that will disrupt business processes by using AI technologies to achieve greater scalability.

“There will be winners and losers in most industries. However, to be a “winner” a company needs not only to be an early-mover in terms of investing in AI, but also possess a proprietary data advantage, an existing competitive edge based on market position and an ability to innovate successfully. Otherwise, any advantages from using AI technologies could be competed away.

“In our view, the future winners are most likely to be found among the existing competitively-advantaged companies.

“We highlight those industries which may see a meaningful impact from AI beyond the tech enablers and related suppliers, such as the software and services, media and entertainment, commercial and professional services and industrials sectors. Our attention is also focused on areas where AI will have a significant role, but the long-term outcome for growth and margins is uncertain. These include the financials, as this sector is an early-adopter, and health care, given it is already investing notable capital in AI.

“To finish, we highlight findings from interviews conducted by Amundi Technology with senior financial services executives over the last six months. For example, GenAI was discussed in almost every conversation, unlike in the past when it was rarely mentioned. In addition, the rapid pace of change those businesses are now facing was emphasised. Any time frame for optimising business plans that stretches beyond six months is considered by these executives as being long-term.

“This pace has ensured that the best-in-class companies are seeking partners to help them navigate their challenges. In particular, attention was drawn to the importance of using AI to unlock the power of proprietary data, given that some of the AI technologies will become commoditised. AI can do general things very well but may struggle when it comes to specifics.”

Read the white paper.

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• India’s economic and demographic outlook points to strong growth over the next decade and suggest Indian equities could over-perform main equity markets.
• Investment is expected to drive the recovery, with government policies and initiatives playing a key role.
• In the equity market, investor sentiment is shifting to value stocks, cyclical industries, and mid- and small-caps. The outlook for fixed income is also favourable, with potential for positive real returns this years.

Investors’ attention should be turning to India, which has overtaken China as the world’s most populous country, says Amundi, Europe’s largest investment manager.

Monica Defend, Head of Amundi Institute adds: “The country has a lot more going for it than just demographics. We expect GDP growth will average 5.2% per year over the next decade, compared with 3.7% for emerging economies, and a modest 1% for developed markets. This year alone, India is projected to contribute up to 15% of global growth, second only to China and more than Europe or the United States. India has all the necessary components to become a key engine for global growth, but must overcome several obstacles before it can unlock its full potential.

“Companies’ capital expenditure has stagnated in the past decade, and we believe the need for new investments will drive growth in the next 10 years. There’s scope for this, given corporates have stronger balance sheets and corporate debt-to-GDP fell by 19% in the ten years to mid-2022. Also, banks have strong capital adequacy ratios of around 16%, which makes them better able to withstand risk and absorb losses, and consequently to lend. Indian banks also cleaned their balance sheets, with net non-performing assets accounting for 1.7% of total advances in March 2022 from a peak of 5.6% five years ago.

“Additional support could come from the government, which is keen to stimulate investment activity in newer sectors. Initiatives like the Production-Linked Incentives (PLI) scheme can help boost manufacturing by wresting some supply chains away from China, propel exports, and attract rapidly growing industries like semiconductors, electric vehicles, and renewables that are of strategic geopolitical importance. In fact, India benefits from maintaining relations with various powers, making it a potentially powerful broker between the East and the West. In some industries, like solar modules, entire value chains could be built domestically.

“Fiscal policy should have capacity to support this push. The government is committed to reducing the budget deficit to 4.5% by the 2026 fiscal year, from 6.4% today. The tax authorities are working to ensure better compliance and close loopholes in the system. An anticipated 1-2 percentage point increase in the tax-to-GDP ratio over the next couple of years could be used to stimulate infrastructure investments through public and private partnerships.

“Even if only half of the proposed initiatives are successful, that would create significant investment opportunities. Leaner cost structures, corporate tax reforms, and policy initiatives should support a strong investment cycle in the medium term.

“Markets are starting to recognise the changing tide. In equities, investor preferences are turning to value stocks, cyclical industries, and mid- and small-capitalisation companies, which have been faring well in the post-Covid recovery. As inflation cools, consumption should also start to pick up. Corporate profits as a proportion of GDP rose 3.6 percentage points between 2018 and 2022, bucking the downward trend of the previous decade.

“We therefore view 2023 as a year of transition for India, characterised by a modest slowdown in growth, but also a stabilisation that sets the stage for a sustainable recovery. India seems poised for a prolonged period of upward economic growth and improved earnings, primarily fuelled by a revival in manufacturing and investments.”

The outlook for Indian fixed income is also favourable, adds Defend.

Defend says: “Market yields offer positive real rates across most maturities, on both realised and forward inflation measures. And more good news may be ahead. Thanks to the medium-term growth and inflation outlook, the Reserve Bank of India (RBI)’s tightening cycle is likely over. Markets may soon begin to anticipate a turn in policy, although some stickiness in core inflation means that the central bank will not be able to ease quickly.

“Finally, we anticipate the Indian rupee will perform better in 2023 than it did last year. Many emerging market currencies have strengthened since the beginning of the year due to the recent weakness of the US dollar. Lower inflation, relatively stronger domestic growth, and a pause in the interest rate hiking cycle are also expected to have a positive impact on the currency. Additionally, the potential for lower oil prices may decrease the country’s import expenses and improve its current account deficit, while active interventions by the RBI over the past eight years have helped reduce rupee volatility and hedging costs.

“India’s demographics, urbanisation, and rising middle class will help sustain growth for many years. But the country will have to invest more to take full advantage of its demographics. Spending on education, the development of skills, and job creation to accommodate the growing numbers of young workers will open up rewarding investment opportunities,” says Defend.

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