According to Alicia Garcia Herrero, Chief Economist-Asia Pacific & Middle East at Natixis Corporate and Investment Bank, India's immediate need is for genuine portfolio inflows to support the rupee. As reported by CNBC TV18, Herrero identifies two critical factors for rupee recovery: a clear end to the Iran war that would remove high oil price risk from the currency, and non-AI trade conditions that would provide structural stability. She emphasizes that while investors are not questioning whether to invest in India, their primary concern remains when the rupee and markets will stabilize.
Recent developments show encouraging signs of market stabilization, with foreign institutional investor (FII) outflows reducing significantly after ballooning in recent months. According to Herrero's analysis reported by CNBC TV18, India received a couple of billion dollars in recent inflows, which is heartening to see after the substantial outflows. However, she notes that investors still worry about potential AI trade rebounds that could negatively impact India again.
Herrero clarifies that the current Iran situation involves secondary sanctions that have been in place for years, including the Huawei case involving CFO Meng's arrest in Canada. As reported by CNBC TV18, she explains that Trump is reminding China to stop feeding Iran with dual-use exports and military-related items, which is not new but represents continued US policy enforcement. She emphasizes that this is not about broadening the war but about maintaining existing sanctions framework.
The artificial intelligence trade has created significant volatility for Indian markets, with Herrero noting that while there was some cooling during the summer, it wasn't considered structural. According to her analysis reported by CNBC TV18, India would benefit from global regulation on AI that shows the AI drive will be softened or decelerate. She suggests that investors view India as the best hedge against AI and potential war scenarios, making it an attractive trade for long-term investors on purchasing power parity basis.
Despite current challenges, Herrero maintains a positive long-term view on India, stating that if you think of purchasing power parity, the rupee is the best trade you can ever do for long-term holders due to India's cheap valuation relative to long-term growth prospects. Meanwhile, ET Now reports that economist Jim Walker, who predicted the 2008 financial crisis, remains strongly bullish on India over the next five to 10 years, citing strong capital expenditure, credit growth and controlled inflation. Walker believes foreign institutional investors could return to Indian equities when global investors start focusing more on fundamentals instead of central bank policy, as the current bond market signals suggest the era of central bank dependence is ending.
