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As pessimism in the Indian Investors continues to prevail, Deutche Bank’s economists observe that the sentiment is unjustified. Observations by the investment bank should should bring some cheer to the street.
Investors in India are seeing increasing weakness in consumption, employment and wages, a very little sign of a pick-up in investment, lingering regulatory uncertainty and infrastructure bottlenecks. The investors are further pessimistic on lack of project clearance, rising NPLs in the banking system, only a limited period of respite from inflation, and considerable policy uncertainty ahead of the 2014 General Election.
Even the recent measures to reform energy prices, lift the ceiling on Foreign Direct Investment in various sectors, further liberalization of the capital account, and fiscal consolidation though seen as durable measures, yet are being felt insufficient to turn the growth trajectory around.
Thus, Desutche Bank Research observes that Indian investors seem to be setting themselves up for poor growth; declining earnings, weak governance, political uncertainty, and disappointing asset market performance for the rest of the year, if not longer.
However the Bank’s Economists feel that local investors are ignoring the fact that a global rising tide, marked by an improving outlook in the US, China, Japan, and ASEAN, would help external demand and capital flows for India. India simply cannot be negative beta in this context.
Secondly, they add that a likely flat or declining path of energy and metals prices would ease the current account burden substantially.
Moreover, they feel that a combination of declining inflation and fiscal consolidation could well pave the path for an easier-than-expected policy rate trajectory.
Finally, with an election year looming, incentives are aligned for the government to boost capital spending (the FY13-14 budget has allocated a 30 percent year-on-year increase in this category), which would likely support growth, ease liquidity, and support investment sentiment.
