India could regain some of its safe-haven appeal among foreign investors if the global equity sell-off deepens, according to independent emerging markets commentator Geoffrey Dennis. As reported by NDTV Profit, Dennis stated there's a very good chance that if this sell-off continues, India will regain at least partially that safe-haven status. India's relatively weak market performance this year could make it a more defensive option if equities in the US, South Korea and Taiwan face further pressure. However, Dennis emphasized that the country needs a catalyst to attract foreign capital, and the current environment offers little support.
Despite India's growth outlook remaining attractive, the country needs a catalyst to attract foreign capital, and the current environment offers little support, according to Dennis. Oil prices at $105 for Brent are not going to be any sort of catalyst at all, he said, describing it as negative. India's growth prospects alone may not be enough to trigger a sustained return of inflows, with the rupee needing to stabilise and begin to appreciate to help draw foreign money back into Indian assets. Elevated crude prices pose a challenge for the country as a major oil importer, Dennis noted, adding to the headwinds facing foreign investment flows.
Despite the Reserve Bank of India's move to raise interest rates, real rates are close to zero, leaving India at a disadvantage compared with markets such as Brazil, where interest rates are much higher, as reported by NDTV Profit. The lack of positive real interest rates poses a challenge for attracting overseas investors to Indian assets. Higher crude prices, amid the conflict involving Iran and the effective closure of the Strait of Hormuz, have added to inflation concerns. Dennis also pointed to the lack of positive real interest rates as a factor limiting its appeal to overseas investors, highlighting this as a key structural disadvantage.
US inflation has emerged as the biggest risk for global markets, with the prospect of further Federal Reserve rate increases contributing to pressure on technology stocks and broader equities, according to Dennis. US headline consumer price inflation of 3.7%, above the Fed's 2% target, suggests another rate hike could come as early as October or by December. Dennis said the Fed has work to do, explaining why markets are reacting the way they are. Higher oil prices have added to inflation concerns, with Dennis identifying this as a key factor affecting global market sentiment. He also flagged risks to AI companies borrowing to fund investment, but said financing pressures would depend more on long-term bond yields than short-term rates.
Emerging markets' outperformance against developed markets has narrowed to just under 400 basis points from about 1,500 basis points a few weeks or months earlier, as reported by NDTV Profit. South Korea and Taiwan accounted for all the gains in emerging-market indices this year, leaving other markets weaker overall. Dennis pointed to Brazil and Central Europe as markets doing well, emphasizing the need for performance to broaden across emerging markets for sustained recovery. A stronger dollar and the retreat in these two markets have since eroded some of the rally, according to Dennis.
