India will get a fair share of equity flows as it continues to have very strong domestic growth outlook, Badrinivas NC, Market Treasurer-Asia Pacific, Citi Bank said in his comments on performance of Indian markets in the light of China opening up after the COVID-19 pandemic.
Speaking at an exclusive interview with CNBC-TV18 on February 7, Badrinivas elaborated, "Even next year, we (India) will continue to still be the best performing large economy of the world. So, I am not really worried that there is any massive re-rating of India," when asked on Indian markets' under performance with respect to China becoming more attractive for global investors.
Badrinivas' comments come in the backdrop of China opening up and foreign institutional investors (FIIs) being bullish there amid pent-up consumption and India's higher valuations. "China opening up has played out to some extent as we saw $4 billion of outflows on year-to-date (YTD) basis and therefore, there is likely to be some re-balancing," he noted, adding that the China story will play through for a couple of quarters as there is reasonably strong growth data coming out.
However, Badrinivas also maintained that from India's point of view, the country's growth outlook "doesn't necessarily change."
Meanwhile, the International Monetary Fund (IMF) in its January update of its World Economic Outlook said it is expecting some slowdown in the Indian economy next fiscal year (FY2023-2024) and projected the growth at 6.1 percent from 6.8 percent for the current financial year (FY2022-2023) with "resilient domestic demand despite external headwinds."
On the issue of Indian rupee trading above 82 against US dollar, weighed down by global cues and a muted trend in domestic equities, Badrinivas said the rupee has clearly underperformed due to weakness in the dollar index. However, mentioning the US Federal Reserve's likely slowdown on the pace of rate hikes in 2023, he added, "Dollar is probably going to consolidate and strengthen in the near term till the Fed pause event is lot more clear, which is obliviously data driven. In that scenario where dollar will do well in next coming weeks, I think INR will possibly be a better performing currency versus the peers, but with an overall weakening bias."
Further, on the market impact from volatility in Adani group stocks following US-based short-seller Hindenburg Research's allegations of improper use of offshore tax havens and stock manipulation by the conglomerate, Badrinivas said, "On a broader basis, if you look at the whole India macro story, that's across various sectors. There's a lot of positive momentum in the country as seen in digitisation and unicorns as we move towards Rs 3-trillion-plus economy." The expert also stated that India has a good story on the global space and therefore, he is not worried about the recent developments impacting the country's story.
On the Reserve Bank of India's Monetary Policy Committee (MPC) meeting's decision on hike in key lending rates awaited on February 8, Badrinivas said that the central bank will continue to be driven by domestic factors and that he expects rate hike in February MPC and then a pause. He also added, "RBI MPC would like to keep their options open. On the whole, 6.5 percent repo rate is fair level, closer to neutral level in my opinion," while highlighting that India's core inflation continues to remain sticky.
Lastly, the Citi Bank top executive mentioned that India's 10-year bond yields could be between 7.1-7.4 percent in near term but they are capped. Highlighting the movement in the markets, he remained optimistic and added that domestic flows will determine the equity movement. "If you look at the last two-three years, domestic flows have been quite strong and have been holding up the markets. In my view, despite interest rates at these levels, there is still enough momentum from a domestic flow to come in to the market and there should not be any big selloff."
He also concluded that given the high valuations, "you are probably not going to get substantial upsides in the index itself in the near-term, but overall, we're quite constructive on the returns from equities for the next year or two."
Meanwhile, on the domestic equity market front, the 30-share BSE Sensex declined 220.86 points or 0.37 percent to end at 60,286.04, while the broader NSE Nifty slipped 43.10 points or 0.24 percent to 17,721.50 on February 7. FIIs were net sellers in the capital markets as they offloaded shares worth Rs 2,559.96 crore, according to exchange data.