Comment: India is ahead of the curve, nearing end of rate rises

On 25 July, India raised its repo and reverse repo rates by 50bp and is likely only one or two rate rise away from the top of the cycle. This is important because this means that while the rest of Asia faces one to two years of rate hikes, India stands alone in being close to the end of their rate rise cycle, according to Dylan Tinker of Venus Capital Management…

As a result, we believe India will look like a relatively attractive equity market in Asia by the end of the 3Q, 2011. By this time, India will no longer be the market that is raising rates the fastest, which has depressed equities. In fact the reverse will be true. Previously Asian “hot” markets like Indonesia should be facing higher rates, and India should be done with their rate rise – which should be broadly positive for the equity market.

We, at Venus Capital argue that inflation has actually been relatively stable over the last two years – in which time India has posted strong GDP and corporate growth. It is true that the Reserve Bank of India (RBI) did mistakenly expect a drop in drop in inflation, however this optimism was not shared in the private sector. We believe that with solid growth numbers expected, the market depressed, and policy tightening coming to an end, the medium-term outlook for equities has never been better.

Download Full Article