A very interesting point that you made there that a couple of these MNCs now are actually looking to delist in some of the other geographies and make way for the India entry. But this particular year has been quite robust in terms of the new IPOs entering into the markets and the new companies entering into the Indian markets. But what I wanted to know is that what is keeping FIIs back from investing in coming ahead and putting the money in the Indian markets? And what can actually be changed in the overall environment to get these FIIs back into the Indian markets? What is your take on that?
Punita Kumar Sinha: Well, as I said, the perception was or has been created across the world is that India is an expensive market and the valuations in India are much higher than the rest of the world, which has kept some of the foreign investors a little bit on the sidelines. And then, of course, China valuations were much lower than the stimulus in China. And if you see now over the last six months, as I mentioned, China has outperformed India and several other emerging markets have also outperformed India and if you look across the world, there are many countries where the valuations are a lot lower and so that is where the focus has been.
But we also need to keep in mind that the risks are more to China going forward from President Trump’s tariff hikes than to India and therefore, foreign investors might start coming back to India given that valuations have corrected in India, stocks have corrected, the market is now no longer at its highs. And also, the domestic demand and the consumption story in India is still strong and is going to be insulated to some extent from any of the trade wars that might emerge.
Do you think the dollar strength will continue because a large part of the FII flows is all currency linked?
Punita Kumar Sinha: Well, it is hard to say. It depends a little bit on how the policies shape out. At the moment, bond yields in the US have been strengthening because there is a concern still that this new era could be more inflationary than is expected. And if you look at the expectation and the probabilities of further rate cuts in the US, there is only an expectation of another 25 basis points cut in the next six months. So, if the bond yields are going up and there are no real rate cuts, the dollar could remain strong. But it is very hard to say what might emerge on the currency markets and therefore, it is prudent perhaps to diversify a little bit into and we are seeing people diversify a little bit into gold, precious metals, even bitcoins.
So, there is a fear that maybe the US dollar strength might come to an end. But at the moment, based on what I am seeing on the bond yields and on the rate cut probabilities, I am not seeing any sudden drop. But again, President Trump could make certain announcement which could change the whole scenario.
The other thing I want to draw your attention to is the RBI macro stability report. And shortly after the RBI governor announced that growth had actually retreated all the way to 5.4%, which was, I think, the lowest in about seven odd quarters. While the Reserve Bank’s forecast is saying that the economy is going to expand now by 6.6% in FY25, I think what the red flag is the fact that they are saying that commercial banks could actually witness a share in the rise of bad loans and that the capital buffers may actually decline in extreme stress scenarios. How do you think the landscape is looking like for the financial sector right now here in India?
Punita Kumar Sinha: To me, financial sector is the backbone of the Indian economy and it is very important for that sector to remain strong if we want to have high quality growth sustained in India. If you see the financial sector has not really done too well compared to other sectors in terms of the stock market returns from a valuation perspective, the sector has already witnessed some derating because of all the RBI regulations and tightening norms and regulatory regime, especially on some of the NBFCs, the fintechs, etc. And so, I am not as worried from here.
I mean, there is valuation comfort. So, one has to be selective. I mean, there is definitely stress, but there is US financial sector which is also seeing the default rate rise in the credit card sector. So, as the economies globally have slowed.
But if you look at the valuation and the risk reward, in my view, maybe if you are selective, financials could be okay and they are also insulated from any global announcements that could affect any exporters.
