India’s 2016 growth increasingly vulnerable to external risks – Moody’s poll

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Market concerns over India’s economic exposure to external risks have risen over the past seven months, a Moody’s poll showed.

Of the market participants who responded to its question on the greatest risk to India’s macroeconomic growth over the next 12-18 months, 35 percent saw external shocks as the greatest challenge facing India’s economy, up from just 10 percent for the previous poll conducted in May 2015, the ratings agency said.

“The market participants we surveyed are increasingly concerned about the potential spillover on India’s growth story of external risks such as interest rate tightening in the US and China’s ongoing slowdown,” says Rahul Ghosh, a Moody’s Vice President and Senior Research Analyst.

“However, the result is more likely a reflection of the broad-based spike in global risk aversion, rather than India’s relative vulnerabilities,” Ghosh said, adding that investors see India as much better placed in terms of growth than most of its similarly rated emerging market peers, such as Indonesia, Turkey, Brazil, South Africa and Russia.

The same poll of respondents found that 32 percent thought sluggish reform momentum will be the largest threat to India’s GDP growth, down from 47 percent in May 2015. By contrast, 19 percent (38 percent in May 2015) said infrastructure constraints were the most important factor, Moody’s said in a statement.

Of those who responded to the polling question on India’s economic growth rate, more than three quarters of those surveyed said headline GDP growth will stay between 6.5 percent and 7.5 percent over the next 12 to 18 months.

Only 14 percent of participants expected growth to reach between 7.5 percent and 8.5 percent. This result was down from the 36 percent of respondents surveyed in May 2015.

Moody’s projects a full year real GDP growth of 7.0 percent in the fiscal year ending 31 March 2016, rising to 7.5 percent in the subsequent fiscal year, the statement said.

On the asset quality of Indian banks, the market participants polled were split on whether government initiatives will help improve the banks’ asset quality, with 40 percent expecting a reduction in weak assets in the coming 12-18 months compared with 45% who believe asset quality is unlikely to improve.

 

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