Is the balance between controlling inflation and growth tilting in favour of controlling rising prices? If so do you think it is detrimental or at least an impediment to the growth opportunities that India could offer the world at this time?
I do not think that the RBI is doing too much on the inflation side. I think that we are in the last 0.5 to 1% of the interest rate hike cycle. Broadly the interest rate hike cycle in India has finished. The RBI Governor is absolutely right in saying that inflation is little high and above their tolerance range and they will try to control inflation. However, I think that the economy is just starting to recover. The RBI governor himself said that for the last eight months we have had double digit credit growth every month from the banks and this is the leading indicator for the growth of the economy. So I feel that over the next three to five years Indian economy is on a very strong footing.
I do not see it as a very big problem for the economy. If the economy will start to grow, the leading indicator for it will be credit growth which is now going to get to about 16% which has not been the case over the last five years. So I would guess in three to five years domestic facing economy stocks be it specialty chemicals, be it pharma, be it FMCG will continue to do exceptionally well.
India will be the only bright spot in otherwise slowing down world economy. Of course India’s growth will also slowdown as the world slows down, however, it will be the only economy which will grow above 6%.
Is the fear now not so much about rising interest rates but much more about the fall in growth and corporate profits? Could this have a trickle effect in terms of our own growth story?
Definitely, as I said they are in the last leg of a very steep interest rate hike cycle. Most of the interest rate hikes have been done now and interest rates will now settle down and we now have to see how long will there be a recession and when is the recession coming up in the US.
A lot of Indian exporters are starting to report a lot of slowdown, it will definitely hit the Indian markets and companies as well. But what I feel is that the domestic story continues to remain very-very strong and we have started to see prices cool off for the many FMCG companies as well. Also, as the credit growth continues to be very-very strong, we will see a lot of the domestic facing economy sectors like the infrastructure sector or the real estate sector or the specialty chemical sector to rev up.
So overall India will continue to remain a domestic facing economy centric country and that is why foreign investors will continue to invest in India. The growth, however, will slowdown from about 7% to about 5.5% to 6%, however, that will be a bright spot in the world economy.
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