India not immune to Fed rate hike jitters, says Fitch

By: |
New Delhi | Published: December 17, 2015 12:13:59 PM

Fitch said India's less dependence on exports and improved external balances make it better placed than many of its peers.

fitch ratingsFitch said India’s less dependence on exports and improved external balances make it better placed than many of its peers.(Photo: Reuters)

India is not immune to potential market jitters on account of interest rate hike by the US Fed, but favourable economic growth outlook makes it attractive for foreign investors, Fitch Ratings on Thursday said.

The country’s less dependence on exports and improved external balances make it better placed than many of its peers, it said.

“India is not immune to potential general emerging market jitters related to the Fed lift-off, but it is better placed than many of its peers for a number of reasons,” said Thomas Rookmaaker, Director, Sovereign Ratings, Fitch Ratings.

The US Federal Reserve had on Wednesday night hiked interest rates by 0.25 per cent. This is the first hike in about a decade, signalling a recovery in the US economy.

“India’s favourable economic growth outlook makes India relatively attractive for foreign investors,” he said.

India Ratings and Research, a Fitch Group company, said the interest rate hike by the Federal Reserve is a welcome sign of normalisation in the US economy and will augur well for domestic financial markets like forex and bonds.

“The Reserve Bank’s focus during the upcoming monetary policy reviews will increasingly shift to domestic parameters, critical being the growth-inflation rhetoric.

“For financial markets, with looming uncertainty over the Fed policy path behind, the driver for markets hereon will be more inward-focussed than external development-reliant,” India Ratings & Research Analyst Bansi Madhavani said.

According to Fitch, India’s external balances have significantly improved since mid-2013, with foreign exchange reserves rising by $65 billion to $353 billion as of November 2015, and the narrowing of the current account deficit.

India is also less dependent than several of its peers on commodity exports and has thus not been negatively affected by the global rout in commodity prices, and also only a small part of India’s sovereign debt is held by foreigners or denominated in foreign currency.

India Ratings and Research further said the rupee is likely to emerge as a gainer in the near term.

“The impact of policy normalisation by Fed is unlikely to have any fundamental shift in the outlook for the Indian economy,” India Ratings said.

It said the stabilisation of external market conditions provides an opportune time for domestic policymakers to revive the issues plaguing the corporate sector.

“They can focus on resolving the problem of stressed assets, creating demand and augmenting the capital expenditure plans,” it added.

Do you know What is Wholesale Price Index (WPI), Public Debt, Finance Commission Grants & Other Transfers, Economic Survey, State Finance Commission? FE Knowledge Desk explains each of these and more in detail at Financial Express Explained. Also get Live BSE/NSE Stock Prices, latest NAV of Mutual Funds, Best equity funds, Top Gainers, Top Losers on Financial Express. Don’t forget to try our free Income Tax Calculator tool.