Investors Strive to Look Beyond India’s COVID-19 Crisis By Reuters

© Reuters.

© Reuters.

By Rodrigo Campos and Marc Jones NEW YORK / LONDON (Reuters) – Indian financial markets have struggled this month as the worst global COVID-19 crisis hits the country, but international investors are betting the economy will rebound quickly once the pandemic has passed. The data shows that more foreign investment money has left India this month than it did for the entire first quarter, as a catastrophic spike in deaths leaves the world’s second most populous country in confusion. Before the rally, the International Monetary Fund, banks and rating agencies were forecasting an impressive double-digit rebound in growth this year, but many of those forecasts will now have to be broken. To view a graph on COVID-19 cases in major cities in India: https://graphics.reuters.com/HEALTHCORONAVIRUS/INDIA/azgpojwjxvd/chart.png JPMorgan (NYSE 🙂 Indian economists have reduced its estimates of second quarter GDP to -16% quarter-on-quarter seasonally adjusted from 6.5% and we still see risks of a bigger setback if the health crisis continues unabated. Citi sees a “significant” possibility that it will also have to cut its forecasts, while the credit rating agency Fitch estimates that the government‘s fiscal deficit will almost double to 14% of GDP this year and raise India’s debt-to-GDP ratio. above 90%. “It’s a really sad situation,” said Kiran Kowshik, Lombard Odier’s emerging markets currency strategist, adding that the crisis was compounded by India’s weak healthcare system and the fact that many workers in informal sectors need power. move for a living. . The Indian rupee has been one of the worst performing heavyweight currencies in the world this month, down nearly 2%. Indian stocks have underperformed major global indices by nearly 7% and those of Brazil, which has also been hit by a sharp rise in COVID-19, by nearly 12%. To see a graph on Indian stocks dragged down by COVID: https://fingfx.thomsonreuters.com/gfx/mkt/oakvewbzavr/Pasted%20image%201619720619921.png Including the bond market sale, Societe Generale (OTC 🙂 estimates that international investors have withdrawn more than $ 6 billion from India in April. But with the new selective closures, the government controlling exports of vaccines and ventilators and other support now coming from abroad, Mumbai ‘s $ 2.4 trillion Sensex stock index has regained some ground and the rupee has fallen. is heading for its best week since August. “Prime Minister Modi, and the partial structural reform that he hopes he will represent for investors, is not politically vulnerable enough, nor are Indian stocks expensive enough relative to history to throw in the towel on what remains the same. better selection of countries in large emerging markets, “he added. said Hasnain Malik, Tellimer’s head of equity research. To see a graph on the Indian rupee falling into COVID troubles: https://fingfx.thomsonreuters.com/gfx/mkt/xlbvgeknlvq/Pasted%20image%201619720944670.png STARS ALIGNING The $ 600 Billion The foreign exchange reserves that the central bank has built up should in the meantime cushion any capital outflow and, unlike last year, the credit rating agencies have stayed away from the downgrade of India’s rating, which would bring it out of the level of investment grade. Although Fitch warned of rising debt and the likelihood that already weak state banks will need more help, it still believes the economy could grow 12.8% this fiscal year, which runs from March to March, after contracting almost 8% last year. “The thing about India is that the public deficit and debt are high, but they remain almost exclusively at the national level and the country has a very strong growth record,” said one of the top sovereign analysts at S&P Global (NYSE: ), Frank. Gill. To see a graph where the value of the Indian stock market has skyrocketed: https://fingfx.thomsonreuters.com/gfx/mkt/dgkvlynrqpb/Pasted%20image%201619788785336.png Lombard Odier’s Kowshik notes that the decline in This month’s stock market comes after $ 36 billion was invested in Indian stocks between September and March. Aviva’s Asia and Global Emerging Markets (LON 🙂 director, Alistair Way, says his firm is tentatively looking at some defeated Indian stocks again, while others see boost for the country’s nascent domestic bond market. The central bank has embarked on quantitative easing, and authorities expect influential investment index providers like JPMorgan and Bloomberg to soon include India, one of the only investment-grade rated countries not yet at those points. reference. Foreigners own only 2% of Indian government debt, roughly compared to 20% -40% in nearby Indonesia and Malaysia, but the inclusion of the index could quickly change that. The government has already relaxed strict foreign ownership limits that had been a major obstacle to inclusion. Analysts say it is also likely to be part of Euroclear’s key ecosystem, where buying and selling bonds is easier. “The stars are now lining up (for index inclusion), said Abhishek Kumar, managing director of State Street (NYSE 🙂 Global Advisors, who believes that India’s local bond market would eventually accumulate the maximum 10% weighting allowed. over JPMorgan’s $ 200-300 billion GBI-EM index. The $ 20-30 billion they could bring in over time “would go a long way toward financing the COVID-related fiscal deficit this year,” he said.