India’s ability to reverse the structural decline in the rupee will draw foreign investors to the country, said Market Matthews, Head of Research, Asia, for Julius Baer during an exclusive interview with Moneycontrol. Since the rupee has been on a decline for decades, it will take longer to change investors’ views. The longer it remains stable, the easier it will be to get noticed, he added.
Matthews said that Julius Baer is overweight on India. He also said, India’s ability to accommodate manufacturing sector in a meaningful way and government push towards building physical infrastructure are important pieces of the India growth story.
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When it comes to India, there is a lot of good happening, added Matthews. If he had to choose one factor that has been impacting India's growth story, Matthews said it would be the reforms that the government has introduced. Improved tax collection, for example, has helped the government build physical infrastructure. "India was always sort of an agrarian slash services story before but now there's a very real chance that that you can get big manufacturing in India."
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This will help bring down imports and the current account deficit. Now that there are highways and improved electricity, airports, ports, etc., India can also “accommodate the manufacturing sector in a much more meaningful way” than before. An increase in exports, Matthews believes, would also be useful in rectifying the current account into a surplus and in turn would be a beneficial force for the rupee.
On foreign investment into India, he says that one thing that often keeps investors away from emerging markets is that they don't want to lose money in currency value. For example, over the last few decades, the rupee lost over 50 percent of its value. But if that's a thing of the past and we continue to see stability in rupee, then Matthews thinks we would naturally see much more foreign funds flows into the country.
The longer the rupee is stable, it will also be easier for it to be noticed by more foreign investors. But Matthews said that one must remember for any currency that has been in a structural decline for as long as the rupee, it will take some time to change investors views.
Additionally, on the back of increased support for manufacturing, if the rupee really becomes a major sector and driver of the economy, then it is possible that the rupee not only stops going down but actually even goes up, he says. But, India will also need to increase its efficiency and productivity as well as becoming less reliant on oil.
Talking about sectors in India that he is bullish on, Matthews says he likes banks because of how they have brought down non-performing assets. "There's a genuine demand for Loans and the banks are in a position now to make them," he says. Along with infrastructure, Matthews says that by the end of the year he thinks, with a growth in GDP, consumption could also be a good space to be invest in.
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