India no longer preferred among emerging markets: Christopher Wood

India is no longer the preferred destination among emerging markets for the month, said Christopher Wood, managing director of CLSA Ltd, an Asia-based equity broker and investment group, on Thursday.

“The reason the rupee is vulnerable is because India is no longer flavour of the month in emerging markets,” Wood said, in his newsletter titled, ‘Greed & Fear’.

“Rather ‘overweight’ foreign investors have been selling Indian equities this year,” Wood said.

Foreign institutional investors have been net sellers of $2.2 billion of Indian shares, and $1.1 billion of debt, year-to-date. Though they have been net buyers of Indian equities for the first three sessions of March, experts see more selling in the offing.

“Still there is a lot more selling that could potentially occur since foreign investors’ aggregate holdings total $308 billion (including $257 billion in Indian equities and US$51 billion in debt), a substantial figure in the context of foreign exchange reserves totaling $350 billion,” Wood said.

“Certainly more foreign selling cannot be ruled out given the continuing overweight stance and Greed and Fear’s base case of renewed risk aversion globally sooner or later. It is also the case that there continues to be a lack of evidence of renewed cyclical momentum in India with credit growth still running only slightly above nominal GDP growth,” added Wood.

According to him, the continuing subdued credit growth is proof that India remains in a deleveraging cycle.

“Meanwhile, it is important to note recent anecdotal evidence that the long festering NPL (non-performing loans) issue in state-owned banks are starting to be addressed,” Wood pointed out.

He also said that the Indian budget has come without the feared aggressive fiscal easing with the government cutting its fiscal deficit target to 3.5% of the gross domestic product or GDP in the fiscal year starting 1 April, down from an estimated 3.9% in the current fiscal year.

The fiscal prudence demonstrated by the government in its budget, has been cheered by brokerages across the globe.

According to Wood, the fiscal discipline suggests that the Narendra Modi government has listened to the cautious counsel provided by Reserve Bank of India governor Raghuram Rajan since more aggressive fiscal easing would have risked destabilising the currency, most particularly if states’ deficits are included, the fiscal deficit is running at 6% of GDP this fiscal year, he added.