The consumption story is showing signs of stress due to a decline in credit growth. But A Balasubramanian, MD, Birla Sun Life Mutual Fund, tells FE that the regulatory action by the Reserve Bank of India on non-banking financial companies and micro finance institutions was needed to ensure that the economy does not face any unpleasant surprises. Excerpts:
The stock market has been falling in the past month due to foreign institutional investors (FIIs) going on a selling spree. Do you see the retail and high-net-worth individuals also start selling?
The Indian equity market has been moving within a range, owing to FII outflows on one hand and general weakness in sentiment on the other. Recent corporate earnings are also very mixed, creating some element of volatility. Despite FII outflows being among the highest, driven mostly by a pick-up in China, domestic institutional investors have turned out to be a strong counterforce to absorb the FII selling. As a result, general concerns about high valuations have also been corrected, with a few sectors facing selling pressure and muted growth expectations in the near term.
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Looking at the long-term outlook for India, I feel Indian retail investors will continue to place their faith in the Indian capital market, purely based on the experience they have witnessed in the last few years. In fact, the investment experience for Indian investors over the last 10 years has been so positive that it has made them realise the importance and necessity of continued investment in equity as an asset class. Keeping this in mind, while overall volatility may persist, Indian equity is likely to have limited downside, so to speak.
What factors could bring back FIIs?
As we move forward, FIIs’ allocation towards emerging markets is likely to increase, driven by two factors: first, the search for growth economies worldwide, and second, falling interest rates, which may provide the necessary leverage to boost allocation towards emerging markets. One must note that, within the emerging markets, India is the most promising market, with clear visibility on economic growth, political stability, and strong corporate fundamentals. Given that India has been witnessing all-round growth across different sectors, there is a high probability that Indian companies will continue to deliver strong performance as well as good returns.
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