Weak currency is a good thing for the country: Arjun Divecha, Emerging Markets Head, GMO

Arjun Divecha, the Head of Emerging Markets for GMO

India benefits from strong macroeconomics which gives it an edge over many other emerging markets. A "weak currency" further acts as a favourable element, believes Arjun Divecha, Head of Emerging Markets for GMO (Grantham, Mayo, Van Otterloo & Co), the Boston-based investing firm. How? At Moneycontrol Global Summit 2025, Divecha explained his thought behind it.

"From a long-term perspective, India is in a fairly good place, and I don’t see any significant macro risks - Unless there’s a global collapse or an external shock," he said. Therefore, for him, India isn’t particularly vulnerable in any major way.

The real wild card, however, could be the Trump-led tariffs, he highlighted. "If those come into play, it could have major implications for global trade and capital flows. However, beyond that, I don’t see any immediate macro threats for India."

"There’s often a lot of concern about currency weakness, but I believe that for developing countries, a weaker currency is actually beneficial," Divecha opined. He further goes on to reason this out, saying, "A weak currency supports exports and forces local industries to be more efficient."

Therefore, while this might look like an unattractive point for foreign investors, for Divecha, it is rather a factor playing out in favour of India's growth momentum. When questioned about his take on the FII/FPI selling spree that began in September, last year, he answered, "On the margin, a weak currency may not always be favorable for foreign investors looking purely for financial gains... But India is not run for the benefit of foreign investors."

"You can't put the cart before the horse," he continues, "India is run for the benefit of the citizens who live over there. You want the investors to come because you're doing the right thing. You don't want to try and get the investors in, such that you get to do the right thing."

He explains that historically, data reveals strong positive correlation between capital flows and past market returns. "Simply put, flows tend to follow returns," therefore, when past performance reflects that the markets are doing well, it will automatically attract foreign investors, adding to the continuity of the favourable trend.

That being said, like many others even Divecha highlighted that India is still the most expensive emerging markets in the current scenario. Thus, pushing him to stay underweight in his investments in the Indian equities market. "While strong macro fundamentals are a plus, valuations do matter.

"We’re close to zero (in India). At the same time, we maintain a fairly diversified portfolio—there are no sharp big bets at this stage. Every month, we reassess India’s attractiveness relative to other markets. If valuations, macroeconomics, or momentum improve, we start buying in. It’s never a zero-one situation; it’s a gradual process," he explained his stance.

While his portfolio is certainly broad-based as of yet, he expects it to become more focused on select areas over time.

At the same time, Divecha is very much equal weight in China, calling it "attractively positioned" for investors in the current scenario. But this also does not mean capital will shift back to China at India’s expense. "Over the last few years, India has definitely gained from investors leaving China... But much of the money that left China, isn't going back, due to a number of reasons such as politics."

While Divecha is still underweighted on India, for now, he emphasises it is rather a process of continuous reassessment. "Every month, we evaluate how attractive India is relative to everything else... Three factors matter: valuation, macroeconomics, and momentum. If any of these—or a combination of them—improves, we’ll start increasing our allocation." Thus, it isn't a question of writing off India but a matter of waiting for the right opportunity for Divecha.