Indian fundamentals are much better than the Chinese fundamentals and the outlook for India over the next few years is even better in terms of growth which could easily surpass that of China in next 2 years.
Prime Minister Narendra Modi wants India to become a $20 trillion economy in the future and much of the emphasis by government is now moving towards pushing growth-focused reforms to revive investment cycle and push GDP growth to 7-8 per cent in the next 24 months.
India is projected to grow at 6.3 per cent in 2015 and 6.5 per cent in 2016, when it is likely to cross China’s projected growth rate of 6.3 per cent, the IMF has said.
FIIs could prefer India over other emerging markets due to moderate valuation, stable government and positive economic outlook. The business friendly policies of the new government would keep the sentiments positive towards India.
As per Mr. Nilesh shah The world is worried that China is slowing down. China is devaluing their currency to get an edge for their exports. They can do a replay of 1997 Asian crisis on a much larger scale.
The reality is that most of the other EM currency has dropped more than Renminbi. Today’s China cannot do a devaluation of the scale with which it got away in Mid 90s.
China slowdown is a big positive for India as it pushes more investor’s to look at an alternate model of balanced growth rather than credit led growth. China’s credit to GDP Ratio is more than two times that of India.
US dollar is appreciating against most EM currencies and is putting pressure on US growth and exports. US Fed will be compelled to keep dollar strength in mind while looking to raise Fed rates. US 10 year yield is indicating the same at below 2% after a long gap. Slower rise in US Fed rates will help India to cut interest rates and attract capital flows.
There is a worry that with oil prices dropping below USD 40 world is moving in to recession or slower growth. Actually India is a large importer of commodity. We import 1.4 billion barrel of oil on a gross basis. Every USD 1 drop in oil price helps us save about USD 800 plus million in import bill. Today with oil dropping below USD 40 our incremental saving will be close to USD 16 billion plus since June 2015 high of oil prices. India is a beneficiary of dropping oil and commodity prices.
The government, unlike in the past has used oil price dividend of more than USD 60 billion to clear fiscal mess.
Currently, India is having good macro fundamentals. Even with increased government spending, the fiscal deficit is under check at below 4%. CAD is under control. Inflation is under control with WPI at negative level for last nine months and CPI at 3.8% is below RBIs target level. Indian interest rates are at a level where they can be cut to support growth. IIP growth is recovering. Benefit of improved government spending is yet to fully percolate to economy.Worlds largest fund epfo to start investment in equity.
Correction in most global markets is driven by local factors. For e.g. Chinese markets are down as they have run up significantly in last 18 months. Russia and Brazil are down due to commodity based nature of their markets. NASDAQ is down as valuation of some of their Tech Cos are showing excesses like 2000 technology boom and bust.
In summary .
Global volatility is here to stay for some time
Drop in commodity price is negative for few EMs like Russia and Brazil but hugely beneficial to a country like India
FII selling is led by oil nation’s sovereign funds, GEM funds and ETFs. It is likely to continue for a while
Domestic participation will determine the extent of drop and speed of recovery in Indian markets
We are more likely to see a U-shape recovery than a V-shape recovery as FY17 corporate earnings recovery will support markets.
Provident Fund participation can also provide additional support.
In the short term it will be futile to predict bottom of the market.
Central Banks around the world will swing into action to support markets sooner than later. Their coordinated action will soothe global volatility.