SINGAPORE (Oct 22): It has been a very tough month, with India continuing to be an outlier in the context of global equities with country risk premiums spiking (spreads of credit default swaps are up to about 150 basis points, the rupee is down 12% year-to-date versus the US dollar) and intensified foreign institutional selling of equities and fixed income (amazingly, calendar year-to-date, net foreign portfolio outflows of US$11 billion [$15 billion] now exceed the prior “record” outflows of US$10.2 billion in 2008). 

Given continued robust growth expectations, stable inflation data, credible monetary and fiscal policies, and supportive flows into domestic equity funds (+US$14 billion year-to-date), the selloff is hard to explain — beyond pointing limply to markets, hypersensitive to negative news flow, extrapolating a short-term liquidity event at a large domestic infrastructure lender, into significant systemic liquidity and contagion risks. 

At the risk of sounding a tad naïve, we would continue to make the case for sustained secular tailwinds underpinning the Indian growth dynamic: fiscal discipline, credible inflation-targeting monetary policy, and transparent policy-making encouraging the commitment of risk-capital to industrialisation, urbanisation, consolidation, financial intermediation, digitisation of the real economy, enhanced agricultural productivity, and the growth in rural incomes and discretionary spending. We would urge investors to take advantage of the selloff and look for opportunities to invest in
Indian equities on a structural, longer-term view.

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