Foreign Investors Have Cheaper EM Options To Pricey India Stocks: RockCreek's Sudhir Krishnamurthi

In the basket of global emerging markets, India is by far the most expensive market in terms of valuation, Krishnamurthi says.

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In 2022, there were record U.S. Federal Reserve rate hikes, and there may still be significant amount of tightening ahead, according to Sudhir Krishnamurthi, senior managing director at RockCreek.

Most of 2023 will be a rate tightening cycle, and this will put lot of pressure on U.S. equities and globally, and the equity selloff is likely to continue, Krishnamurthi, whose firm manages $15 billion in global assets, told BQ Prime's Niraj Shah.

The U.S. has been facing issues getting inflation under control, he said. "If the U.S. catches cold, everyone else in the world gets fever."

"The Federal Reserve is hawkish on rate hikes, and it will be challenging for them to bring down the rate hikes," said Krishnamurthi.

India Vs EM Peers

In the basket of global emerging markets, India is by far the most expensive market in terms of valuation, Krishnamurthi said. "India is not a cheap emerging market."

"People do not feel negative about Indian equities; they just feel it is too expensive and go for cheaper markets," he said. As there are plenty of other alternatives to Indian markets, including China and Brazil, foreign investors opt for cheaper markets, Krishnamurthi said.

According to him, China is the first option for investors who want to enter into emerging markets where valuations are cheaper.

However, India had a good run in 2022—relative to global emerging markets—despite having expensive valuation, he said.

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Union Budget 2023

Union budget 2023 was about boosting rural income and the infrastructure spend, "as infrastructure income continues to be a large portion of rural income".

The government prioritises building infrastructure, but the spending is slow, he said. "The ability to reach the consumption basket is very slow and in a short period, there will be no boost in the economy."

He gave the example that between choosing to spend money on buying food and building a house, people will always opt for buying food.

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India Outlook

As a country, there is a focus in India on entrepreneurship, he said. "We are very good at creativity and making new products."

According to him, India has also branched out into private equity and venture capital and "that's where the future of this country lies".

"Twenty years ago, private equities and venture capital was not very good in India. The markets were not developed ... minority shareholders, foreign investors did not get what they think was due. The markets were not deep enough to do IPOs," Krishnamurthi said.

However, things are different now. "India is a $3.5 trillion equity market and several IPOs and unicorns are coming into the picture," he said.

Watch the full conversation here: