Aberdeen Standard Investments has adopted a “defensive stance” towards India in the short term, as government measures to support the economy have fallen short of reviving demand with lacking key reforms.
Prime Minister Narendra Modi last month declared a $265-billion rescue package — equivalent to 10 per cent of the gross domestic product — to help support businesses hit by one of the world’s strictest stay-at-home order as the nation grapples with an increase in coronavirus infections. Yet, almost half of the stimulus comprised monetary measures announced since February.
“We view the package as a tad underwhelming, given that it does little to boost demand or relieve stress for companies and sectors that have effectively come to a standstill during the lockdown,” Kristy Fong, senior investment director for Asian Equities, said in an email. It also lacked tax breaks or a plan for infrastructure spending and reforms to support the manufacturing sector.
The money manager, which oversees over $644 billion of assets globally, now has “heaviest exposure” relative to the benchmark in software exporters, materials, especially cement, and consumer staples. It expects stocks to remain volatile while the outbreak likely to be a hindrance to global economic recovery.
“State coffers have been hurt by the coronavirus relief measures, further limiting fiscal levers,” Fong said.
Moody’s Investors Service on Monday downgraded India’s credit rating to the lowest investment grade, citing a prolonged slowdown and rising public debt.
The benchmark equity indices took it in their stride by rising 1.6 per cent on Tuesday, and advancing again on Wednesday, though they remain vulnerable to actions from S&P Global Ratings and Fitch Ratings, which might change their outlook to negative in light of the risks flagged by Moody’s. The nation’s manufacturing PMI remains close to historic lows and is in contraction territory for a second-straight month.