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Amid uncertainty, falling risk appetite, India fared better than major economies: CEO, PGIM India Mutual Fund

While inflation and interest rate hikes have been major concern for economies and markets, he said that three-six months back people were very concerned about inflation and interest rate hikes, but today much of that has already got priced in or done

Ajit Menon, PGIM India Mutual FundAjit Menon, CEO, PGIM India Mutual Fund

Despite global turmoil, India has performed better than many other emerging economies. Ajit Menon, chief executive officer, PGIM India Mutual Fund told Hitesh Vyas and Sandeep Singh that the country’s macroeconomic fundamentals remain strong and it continues to be one of the preferred destinations for investors. While inflation and interest rate hikes have been major concern for economies and markets, he said that three-six months back people were very concerned about inflation and interest rate hikes, but today much of that has already got priced in or done

What has happened to the global liquidity situation?

There was a situation when liquidity was available globally on tap and now, suddenly central bankers the world over are simply looking at taking out that liquidity. While that liquidity went into people’s accounts to some extent, the rest of it was sloshing around in banks, moving to hedge funds and private equity (PEs) players. Liquidity is currently getting squeezed out completely. You are going to have asset stress all over, and the largest guys will face the impact.

How badly is this stress going to hit India?

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Around three-six months back, people were very concerned about inflation and interest rate hikes, but today they feel that much of that has already got priced in or done. The narrative now is that there could be a soft landing or it could be something where if growth tapers off, you could potentially have the US Federal Reserve cooling off.

When you look at India, we have benefited from the whole thing. Even if we have lost, we have lost less than other emerging economies. There is attention towards India, globally. There’s hardly a large economy that can boast of saying that even if the World Bank or IMF says growth is going to be 6.8 per cent and not 7 per cent, the growth is one of the best among large economies.

The high-frequency numbers on GST and toll collections, and credit growth show that India is relatively much better than other economies. The balance sheets of Indian corporate and banks are very good. Though uneven, monsoons have been okay. So, at least the fundamental foundation that you need to capture what is coming ahead as an opportunity, is pretty much there.

Indian markets have rallied in the past few sessions as concerns over global inflation and growth have eased. Are you still cautious?

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We remain cautious on global developments. While the latest inflation number is comforting, central bankers have a very high priority on containing inflation and are unlikely to change their stance based on few data points. As a result, concerns on global recession are real and one should be mindful of the likely impact of this on financial markets including Indian markets. India’s economy is relatively much stronger and attracting global flows. We expect this trend to continue.

How is higher inflation going to impact consumers and demand going forward?

Higher inflation has a disproportionate effect on different segments of the market. There is an impact of inflation but given that we have a productive workforce, it will not be much. The Reserve Bank has become very independent compared to before, and its mandate has changed with a target for inflation. It is not the inflation which is dangerous but it is the inflation expectation which is dangerous. If inflation expectation becomes embedded, then it is very difficult to turn the ship back. Today, if you look at the spread in the US or India, it indicates that inflation expectation hasn’t gone through the roof. People believe that there is a pinch but the RBI is taking the right actions.

What are the external sector vulnerabilities for India?

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There are some vulnerabilities on the external side as your (forex) reserves are now dropping and the current account deficit, which used to be on an average 1.5-1.8 per cent, has suddenly widened to 2.8 per cent (in Q1 2022-23). This means that the external investor is still not going to come with open arms. It’s good to know that the drop in reserves is largely because of MTM (mark-to-market) and not necessarily only because of the outflows. On the other side, FDI inflows, and interest in India seem to be pretty robust. So, when you tick the boxes and try to see them, of course, there is uncertainty and the risk appetite is falling, but from a global point of view, when you look at India, we are far better off where we are.

Will higher interest rates and slowing demand hurt the investment scenario?

So, it might vary depending on the kind of sector and stuff where it might play out more or play out less. When liquidity is getting sucked out of the system by central banks, the crazy evaluations and the ability to throw money at a wall that it will stick somewhere or the other, is now obviously disappearing. People are paying more attention and asking where the quality business is. Where is the cash? Show me the cash which is in the bank!

But, the opportunity is for the first-movers everywhere.

First published on: 28-11-2022 at 04:20 IST
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