In an interview with Mohammed Ekramul Haque, Harshad Patwardhan, Executive Director, J.P. Morgan Asset Management says that the long-term case for FDI in India remains strong.
How do you see the US and the European crises panning out? What impact could they possibly have on the Indian markets?
It is difficult to predict how exactly the external crises will pan out as there are too many economic and political complexities involved. What we can say, however, is that they will likely keep market volatility high. Economic growth in these regions is likely to be subdued in the medium term. On a net basis, weak growth in developed markets might be a positive for India if it results in a correction in commodity prices. However, a weak rupee might offset this benefit to an extent.
What effect will the backtracking on FDI in retail have on future FDI flows into India?
In a way, the retail FDI issue was a test case of how the beleaguered government kick-starts the reforms process which has been stuck for over a year now. Unfortunately, due to political compulsions the outcome turned out to be disappointing. In our view, this could have a near-term negative impact on sentiments as far as FDI is concerned even though the long-term case for investment in India remains solid. The government, on its part, might try to still take forward the reform process wherever it is politically palatable.
How do you see the rupee moving, and what impact will it have on India Inc’s debt burden?
At present, factors such as the current account deficit and weakness in foreign direct and portfolio investment suggest continuing weakness in the currency. While the exact impact will depend on individual circumstances such as the extent of hedging, and a few companies will benefit on the P&L side, overall this trend is negative for companies with externally-funded balance sheets.
Do you expect inflation to ease in 2012? From when could we see rate cuts begin?
The recent data points on WPI and food inflation suggest that inflation is likely to ease through 2012. As inflation might still remain higher than RBI’s stated comfort zone, it is hard to say when rate cuts will begin. However, RBI will likely look at the aspect of weakening growth also before arriving at a decision.
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