Fears for Indian prospects in 2014 may be misplaced and the country will perform well this year, according ACPI Investment Managers.
While the past year has been a turbulent time for emerging markets with political instability, inflation and the fledgling recovery in the West all causing significant headwinds, India is taking steps to address its issues, to the benefit of the country’s investors.
Data from the country’s main bank, the Reserve Bank of India (RBI) at the end of 2013 showed that the Current Account Deficit (CAD) narrowed significantly from USD21bn in Q2 2012 to USD5.2bn in Q2 2013. The fall in gold imports was a major contributing factor to this reduction as was currency depreciation.
Similarly, India’s exports have become more competitively priced over the last few months leading to higher exports in textiles, chemicals and leather goods.
The CAD is likely to remain at around three per cent of GDP for the next financial year as gold imports remain low and exports continue to increase.
Steven O’Hanlon, head of fixed income at ACPI Investment Managers, says: “The demise of emerging markets at the expense of resurgent developed countries has been greatly overstated. While the more established economies have bounced back and countries like India have faced significant challenges this year the fact remains that yields and long term prospects continue to look favourable. In recent months we have seen a lot of positive news from the RBI including an announcement that inflows to the bank have increased to USD34bn, much higher than anticipated. This gives the bank additional fire power to intervene in the markets if needed to counteract currency volatility. This will also help the bank control the impact of the end of quantitative easing in America as it takes affect over the next few months.
“It is important for any emerging market investor to expect and be comfortable with some short term volatility. The next 12 months will not be all good news for India and we expect more outflows from banks and bond markets to have a continued impact on currency volatility. The pay off for weathering these small dips is that the long term growth prospect for India is much higher than expected for either the UK or US.”