India’s economy is showing enough resilience to grow between 6.5% and 7%, with room for upside despite higher crude oil prices and global uncertainty, according to Sajjid Chinoy, Head of Asia Economic Research at JPMorgan. Strong credit growth, healthy exports, improving goods and services tax (GST) collections and supportive policy measures are helping the economy withstand external shocks, he said.Chinoy believes the government’s coordinated fiscal, monetary and regulatory push over the past year is beginning to deliver results. While the conflict in West Asia may temporarily weigh on corporate earnings through higher input costs, he expects domestic demand to remain strong.
“The good news is I think growth is still resilient,” Chinoy said, pointing to strong high-frequency indicators. “Credit growth is strong, autos are strong, other high frequency GST collections are picking up, exports have held up.” As a result, he believes “growth between 6.5 to 7% seems likely with some upside risk.”However, he cautioned that the biggest threat to India’s outlook is not crude oil or US interest rates, but weather. While India is well placed to manage oil prices around $85 a barrel and tighter global financial condition, a severe El Nino could disrupt monsoons, hurt sowing and push up inflation.On the recent weakness in the rupee, Chinoy urged investors not to judge the currency in isolation. He said the rupee has largely moved in line with other emerging market currencies as the dollar strengthened and oil prices climbed.”The way to judge us is to step back… what you will see is if you line up emerging market currencies against the dollar, the rupee is smack in the centre of that pack, where policymakers like it to be,” he said. He added that the Reserve Bank of India has also allowed nearly $15 billion of its forward book to roll off during this period, making the rupee’s performance even more noteworthy.Chinoy also pushed back against concerns that the RBI’s Foreign Currency Non-Resident (FCNR) deposit scheme has failed to attract sufficient inflows. Drawing parallels with the 2013 scheme, he said banks need time to obtain approvals, prepare term sheets and negotiate with investors before the bulk of deposits arrive.Beyond FCNR deposits, he expects additional support from potential Bloomberg bond index inclusion and overseas borrowing by banks under the RBI’s subsidised swap window. Together, these could provide steady capital inflows over the coming year.Watch the full conversation hereOn liquidity management, Chinoy said if the expected capital inflows materialise, the RBI is more likely to rely on temporary tools such as an incremental cash reserve ratio (CRR), cash management bills or market stabilisation scheme (MSS) bonds rather than permanent measures like open market bond sales. Since currency leakage and current account financing will naturally absorb liquidity over time, he believes temporary measures would be the more appropriate approach.Catch all the latest updates from the stock market here
Source link
