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3 factors that are keeping the Indian economy vibrant

December 22, 2014 17:27 IST

While India is not totally insulated from the adverse global cues emanating from falling crude prices and depreciation in Russian currency, 'it is relatively better-off', the Citi economists said.

Prime Minister Narendra Modi

Image: Prime Minister Narendra Modi. Photograph: Reuters

India remains a consensus favourite investment destination for US companies, largely on the back of a 'Modi-Rajan-Commodities trinity', global financial major Citigroup said in a report on Monday.

While India is not totally insulated from the adverse global cues emanating from falling crude prices and depreciation in Russian currency, "it is relatively better-off", the Citi economists said.

Listing out factors in favour of India, they said in the report that India is a net importer of crude, its macro fundamentals are improving and rising forex reserves are giving a further boost.

In a report today, Citigroup said: "Unsurprisingly, India remains a consensus favourite both as an absolute and relative play due to a trinity of factors -- business-friendly Modi government; pro-active Reserve Bank of India Governor Raghuram Rajan and commodity tailwinds.

RBI Governor Raghuram Rajan.

Image: Reserve Bank of India Governor Raghuram Rajan. Photograph: Reuters

"Following a strong market performance in 2014, most investors were of the view that the on-going cyclical and structural upturn could result in India continuing to outperform in 2015, albeit at a modest pace."

However, the report said that despite high expectations, memories of the 2013 taper tantrums have resulted in investors remaining on guard and watching out for potential risks.

NPA issues in the banking sector, standoffs in Parliament denting the reform momentum and limited space on the fiscal side are among the major concerns for investors.

"Many feel that the first full budget of the BJP government in February 2015 will provide useful insights on the path ahead," the report said.

CommoditiesWhile estimating that Indian economy is likely to edge back to 7 per cent growth rate and lower inflation, Citigroup noted that "unlike the 2013 taper tantrums, when India had a high current account deficit, elevated inflation and weak growth, India’s fundamentals have improved".

"However, we re-iterate there is no room for complacency as generalised EM risk aversion could result in reversal in portfolio flows and external debt de-leveraging," it added.

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