Foreign investors are bullish on India after Moody's Investors Service upgraded the nation's sovereign rating after about 14 years, betting that reforms like the new nationwide tax and fund infusion into state-run lenders will only make it more attractive.
The upgrade for Asia's third largest economy was long coming and Moody's is only ahead of the curve among rating agencies, said Kenneth Akintewe, senior investment manager at Aberdeen Asset Management Asia that manages $400 million worth of assets in India. Investors will take any fiscal slippage in their stride, he told BloombergQuint in an interaction.
India plans to inject Rs 2.11 lakh crore into public sector lenders facing mounting bad loans. That raised concerns of overshooting the fiscal deficit target even as the growth declined to its lowest in three years. The government continues to spend to boost infrastructure while private investments are yet to pick up. And demonetisation and reforms like the Goods and Services Tax caused disruption.
Moody's said this will only hurt growth in the short term. Akintewe agreed. India is one of the strongest reforming countries among emerging markets and infrastructure projects and GST will only drive earnings and growth, he said.
Akintewe, however, cautioned that Indian equity markets look slightly expensive as the emerging economies are in a seasonally weak period.
Bill Maldonado, chief investment officer-Asia Pacific at HSBC Global Asset Management, admitted that valuations are a hindrance. “It doesn't mean that all situations are expensive,” he said. “Sometimes you have to be a bit brave, like anyone who positioned themselves in public sector banks ahead of the recap announcement.”
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The fund injection would have been the final set of the jigsaw puzzle that would have contributed to the ratings upgrade. While the upgrade is not an investible event by itself, HSBC is overweight on India and it's impossible to ignore the nation for a global asset manager, he said.
Guy Stear, head of emerging markets & credit research at Societe Generale, was less sanguine about the impact of the upgrade. The FII view on India does not change after the upgrade, and it's just a sentimental positive, he told BloombergQuint from Paris.
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