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Pro-business Modi, pro-active Rajan keeping India a favourite, says Citi

While India is not totally insulated from the effect of falling crude oil prices and depreciation in the Russian currency, "it is relatively better-off", Citi said.

twitter-logoPTI | December 22, 2014 | Updated 21:33 IST
India remains favourite of US firms for investment: Citi
(Photo: Reuters)

India remains a consensus favourite investment destination for companies in the United States, 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 slumping crude oil prices and depreciation in the Russian currency, "it is relatively better-off", economists at Citi said.

In its report, the American financial services firm 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 RBI Governor Raghuram Rajan and commodity tailwinds."

Listing out factors in favour of the country, Citi's economists said in the report that the country is a net importer of crude, its macro fundamentals are improving and rising foreign exchange (or forex) reserves are giving a further boost.

"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," the report added.

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

Among major concerns for investors are NPA issues in the banking sector, stand-offs in Parliament denting the reform momentum and limited space on the fiscal side.

"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.

While estimating that the domestic economy is likely to edge back to 7 per cent growth rate and lower inflation, Citigroup noted, "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," Citi economists added.

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