BlackRock says coronavirus has weakened the investment case for Indian assets

Devotees, wearing facemasks amid concerns over the spread of the COVID-19 novel coronavirus, arrive to pray at the Golden Temple in Amritsar on March 13, 2020.

Narinder Nanu | AFP | Getty Images

India‘s economy was already slowing when the coronavirus pandemic hit, weakening the case for investors to buy the country’s stocks and bonds, according to a BlackRock portfolio manager.

“Overall it leaves the case a bit weaker,” Neeraj Seth, head of Asian credit at the investment giant, told CNBC’s “Squawk Box Asia” on Tuesday.

“India entered the whole situation of Covid on a weaker footing … and if anything, the lockdown and the slowdown of economy only put more pressure on the banking system,” he added.

The country’s banking sector has long been plagued with troubles such as large amounts of bad debt, which has hurt the economy. Growth in India’s economy — the third largest in Asia — slowed to 4.7% in the quarter ended December 2019. It was the weakest pace in more than six years.

With the country now in lockdown as the government attempts to slow the spread of the coronavirus, Seth said the Indian economy could even contract in the coming quarters.

Official data in India showed total confirmed cases of Covid-19 standing at 10,363 as of Tuesday morning, with 339 deaths. Indian Prime Minister Narendra Modi on Tuesday extended the coronavirus lockdown until May 3. The initial 21-day nationwide restrictions were supposed to have been lifted today.

Slower economic growth means that company earnings will be hurt, and that would hit the prices of stocks and certain bonds, said Seth, adding that BlackRock has been “cautious” on Indian credit at the “lower end” of the ratings spectrum.

But with India’s central bank — the Reserve Bank of India or RBI — expected to cut interest rates further, fixed income investments could benefit, he said.

“So overall, the case for fixed income, probably positive because we do expect the RBI to cut rate and the direction of monetary policy is still towards easing; the case for Indian credit, a little bit more nuanced, a bit more mixed depending on quality … and also case for equities also remain mixed here,” said Seth.

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