Uday Kotak, veteran banker and founder of Kotak Mahindra Bank, raised a note of caution asking whether India has to capacity to absorb a 'global shock' if 5-10% of the equity in listed Indian companies that's with foreign portfolio investors ever moves out.
Speaking at the CNBC-TV18 Global Leadership Summit on November 14, Kotak pointed out the discourse that had emerged in October when foreign investors sold record shares worth $11.2 billion in one month, triggering a 6% cut on Nifty 50 and BSE Sensex.
"If $10 billion going out in October create such a discussion, we have to find a way to say that can a 10% move from $900 billion?", Uday Kotak asked, if the country has the absorptive capacity to take such a cut. As per NSDL data from September 2024, FPIs hold close to $930 billion in Indian equities.
The October selloff by FPIs had led to Nifty's worst monthly fall since the pandemic had struck in March 2020. Uday Kotak said his larger point was if the Indian stock markets are resilient enough to face such a shock, and that the country needs to get more competitive on global trade.
"Hope Indian market is resilient enough, we have $90 billion in our forex reserves, that is not a problem. But, in the long term, on our trade account, we need to get much more competitive."
Uday Kotak said the experts have pointed to India's encouraging macro picture, however, the nation needs to prepare to compete in a world that is getting more protectionist in international trade.
"The US can afford to do it, but can India afford to be protective on the trade account, and not be competitive?"
Kotak said protectionism for domestic manufacturers is a "dangerous" trend in the longer term, and he would like to see Indian businesses compete under a free and fair trade environment. "You cannot live on being protected forever," he said, adding that if the nation aspires to be the third largest economy, why is it "scared of more open borders on trade?"
On President-elect Donald Trump's economic policies, Uday Kotak said he views them as "very inflationary" for the world. If the US cuts corporate taxes, raises tariffs on imports, it will strengthen the US Dollar as well as the US bond yields. This, he said, gives US "disproportionate" financial power. "How are we going to take a position despite running a fiscal deficit," Kotak asked.
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