The slowdown in the Chinese economy has shifted focus of foreign investor attention to India, with macro stabilities such as comfortable fiscal position, low inflation and adequate forex reserves coming in India’s favours.
Among all the factors, the Reserve Bank of India’s forthcoming monetary action is likely to be the most visible, as an interest rate cut is widely expected to boost corporate profitability and increase consumption. This will balance the government’s fiscal spend and give India an edge over China, according to experts.Taking note of the country’s growth potential, foreign media reports on Friday also suggested the emergence of India as a favourite investment destination, if the Chinese economy falters.
Abhishek Gupta and Indranil Sen Gupta of DSP Merrill Lynch said the US Federal Reserve’s plan to raise interest rates will make it easier for RBI governor Raghuram Rajan to cut rates by 25 basis points by September. A Fed rate hike signals US recovery as “it stimulates export demand and reins in global commodity prices. Finally, it supports the rupee by rekindling risk appetite for high-growth emerging markets,” they said in a report.
Although the US Fed is scheduled to raise rates in September, the recent economic slowdown in China could likely push back the schedule, according to policy makers. While it was widely-expected that a rate hike would pull out FII money from emerging markets, including India, experts said it would also signal a revival of confidence in global growth by the world’s largest economy.
Markets will also watch for August auto sales data, Purchasing Managers Index and passage of key bills, including GST Bill, for possible triggers ahead, analysts said.