In an analysis by HSBC about the top 10 questions on the minds of foreign investors for investing in Asia, the outlook for India is gloomy with the slowdown and general elections, approximately 6 months away.
No of Investors argued that the cyclical downturn in India may turn into a full-blown slump as global financial problems start to spill over into the economy. However, HSBC firmly defended that there one should not be worried.
Robert Prior-Wandesforde quoted,
Indian economy remains fairly well insulated from any real sector contagion, given its small share of exports in GDP. The country’s vaunted services outsourcing industry is more vulnerable to the global downturn than widely believed. The current stresses seen in India’s inter-bank market reflect a temporary adjustment of the financial sector to both the dollar squeeze and the cyclical downturn but do not represent any systemic risk and the Reserve Bank of India remains well placed to handle any potential liquidity squeeze.
Robert quoted that the political scenario in India is not favorable,
Most likely outcome is, a broad coalition government without a strong political mandate for reform. This raises the chance that the reform momentum becomes stalled, a scenario that would entice an ever greater risk premium among more wary global investors.
CLSA Equity research in its report has echoed similar views – Third Front government which, with neither the BJP nor Congress controlling it, would be inherently unstable and lacking long-term policy direction.