Mumbai: Debt investors are optimistic on India’s economic prospects. A fixed-income investors survey by Fitch Ratings Ltd on Tuesday said a majority of these investors are optimistic that the country will return to the growth path seen in 2007 over the next 7-18 months.
In 2007, the economy grew at 9.74%. It fell to 9% in 2008 and 6.7% in 2009 after a global financial sector meltdown froze the credit market and forced the Indian central bank to drastically cut interest rates and pump in liquidity. The government had to swung into action and announced stimulus packages to spur growth.
Fitch polled 35 large institutions, including banks, insurance firms and mutual funds, in August-September seeking their views on economy, risks to growth, corporate leverage and interest rates, among others. Over half of the respondents manage at least Rs5,000 crore of fixed-income investment each.
Only 3% of respondents said that the current slowdown in India would last for more than 18 months. More than half of the respondents expect the Indian central bank to increase its policy rate within the next six months.
Since October 2008, the Reserve Bank of India has cut its policy rate from 9% to 3.25% in stages to make money cheap and tide over the economic slowdown.
The economic growth is likely to be buoyed by improving credit conditions across various infrastructure-related sectors such as energy and utilities, said Fitch’s first semi-annual fixed investor survey, authored by Amit Tandon and Atul Joshi.
Fitch has been carrying out such semi-annual surveys in New York and Australia and a quarterly survey in London to gauge investor sentiment. This is its first Indian survey.
India’s bellwether equity index, Sensex, started slipping after hitting a record in January 2008, forcing corporations to shelve plans to enter the capital market to raise funds. At the same time, they also found it difficult to raise debt as interest rates rose and the liquidity conditions turned tight with the Indian central bank raising policy rates and banks’ reserve requirements. The situation turned worse after the collapse of US investment bank Lehman Brothers Holdings Inc. in September 2008.
While 82% of the respondents of the Fitch survey said the worst is over for the corporate sector in terms of accessing funds, 78% are optimistic on banking and insurance sectors.
More than half of the respondents still feel they are yet to see the peak of market disruption in structured finance and 94% said they are either in the middle of—or yet to see—the worst in structured finance.
Also, not too many of the respondents are confident about the fundamentals of the banking sector and 57% of them said Indian banks cannot survive the downturn without raising more capital.
There is a “considerable easing of investors” views on the financial markets, Tandon and Joshi of Fitch said in their observations.
Sujoy K. Das, head-fixed income, Bharti AXA Investment Managers Pvt. Ltd, which manages Rs339 crore in assets, said: “A lot of liquidity is coming in and this is driving the recovery. So, even though credit offtake is low, companies are able to raise non-bank funding cheaply. Demand is far higher than before in many items and we expect August industrial production data be far better than July”.