Indian markets will trend back to normalcy unless the situation with Pakistan worsens dramatically, according to Anindya Chatterjee, the managing director and senior portfolio manager at City National Rochdale.
Foreign investors are heavily exposed to sectors that “do not necessarily get impacted by events like these,” Chatterjee told BloombergQuint's Menaka Doshi. Chatterjee, whose emerging market fund has invested around $250 million in India, cautions that a full blown military confrontation will hurt businesses and consumers, and divert policymakers' attention away from the economy.
Edited excerpts:
As a foreign investor in India, how do you react to - first, the attack in Uriand now the surgical strikes that India has mounted on terrorist camps acrossthe Line of Control.
Yes, geopolitical uncertainty is something that investors never like. It causes intangible risk that comes in your portfolio. Now the India-Pakistan issue has been boiling for some time and hence the market probably was ready and prepared for news like this. However as and when it happens, the market reacts.
It's probably difficult to say where and how far this event would lead us to but its without doubt that the geopolitical risk in India-Pakistan and South East Asia has risen considerably. Pakistan is a rouge nation. You don't know who's controlling their decisions so it brings in bigger uncertainties. There are other nation that play today, it's not just India and Pakistan. There would be Russia, there would be China involved in some way or the other. So it is hard to really fathom at this point how large this risk is. Hence it is a big uncertainty and is negative for investors.
Pakistan has of course not taken too kindly to news reports and has said in many different words, and I don't mean to speculate or escalate the matter, that they are likely to react. We don't know what the situation will be like, even a few hours from now. But we did see a knee jerk reaction of an up to 2 percent in the Nifty and the Sensex. Do you expect that could get worse If things were to worsen geopolitically from here?
People have looked at similar instances in the past. TheKargil incident and even earlier, the market bounces back and market bouncesback for India in tandem with emerging markets. So likelihood is high that wewill kind of trend back to normalcy unless the situation worsens dramaticallyand I don't expect that. So at this point we have limited information and wewill have to closely follow what goes on from here so I hope normalcy will comeback sooner than later.
Well that's our hope as well, but without wanting to make matters worse, if there was hostility on the border, right now there are just surgical strikes but if it did become two nations engaging on the border, do you expect the cuts to the stock market could be substantially deeper?
Of course, if there is a full blown military confrontation between the two countries, it will impact consumers, it will impact business and its will impact businesses. It will divert policymakers' attention to unproductive war front than the economy. So it's all negative from that perspective if all that happens.
So hope is that both nations would know the significant cost of such a situation and hence dialogues would prevail. Even the international community would also help in to promote dialogue and not war. At this point, I would not speculate and think that things would fall in place and we would have more of a normalcy.
India has been one of the favourite emerging markets for investors this year, or at least over the last couple of months. Do you expect that if this situation on the border continues that foreign investors might take a more negative view of India over the medium to longer term?
This is a difficult question. This year in emerging markets, we have seen resource heavy countries like Russia and Brazil perform significantly better than the resource consuming countries like China and India.
So Brazil is up substantially, both in currency and local market. India is up about 7 to 8 percent in dollar terms. It's not significant but it's much better than what things were six months back. Will there be a substantial re-allocation and money going out of India because of all this uncertainty? First of all, the foreign investors are very very heavily exposed in sectors that do not necessarily get impacted by events like these. So the software services sector or the pharma exports sector or even the private banks, the impact of this kind of a scenario is less pronounced in these, particularly in the export sector where foreign investors are more exposed. I don't see a dramatic negative impact coming out of this.
India is a large diversified country. It's a very strong emerging economy today in terms of growth. People look beyond one year and two years when they are allocating and think in terms of a country weight. India has the prospects given the demography, given the policy and politics, the shift towards growth that we are seeing. It makes us very constructive.
Also Read
Market Plunges As Indo-Pak Tensions Escalate: Is It A Good Time To Buy?
Attack Injects Caution Into Stellar Quarter for Indian Markets
After Surgical Strikes Across LoC, Modi Needs To Address The Kashmir Conflict
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.
