Ridham Desai Says Three Reforms Make Indian Markets Resilient To Global Crisis

Even though the ongoing global crisis should not be discounted, Indian stock markets are more resilient on the back of three key reforms, according to Ridham Desai of Morgan Stanley.

“It is a very tough world. We should not be complacent about it at all,” Desai, managing director as Morgan Stanley India, said during a session—titled ‘The India Decade’— at BQ Prime’s Future Today Summit. “20% of India’s GDP comes from abroad… it is a very large number contrary to popular perception that India is a domestic economy.”

“If that export growth goes away, it will have an impact on capex, on domestic growth,” he said. “We have to worry about the war because that can bring inflation to us, especially fertiliser prices, which are very rich compared to where they were three years ago. But I think we are well placed.”

Historically, every U.S. recession in the last 30 years has brought a bear market in India and that is because India was overly reliant on capital market flows to fund its deficit, Desai said.

“We are far less sensitive from a stock market perspective,” he said. “The economy will still suffer a little bit.”

Participants at BQ Prime’s Future Today Summit were unanimous in their opinion that Indian markets won’t escape the impact of looming recession in the developed nations as central banks increase rates to tame runaway inflation. Yet, most of them were confident of a rebound despite the macro slump.

According to Desai, In India has seen three major reforms that have bolstered the domestic markets in the past seven to eight years.

“We allowed for the first time in 2015 retirement and pension funds to invest in equities,” he said. “It started with a very humble 5% number, and today it’s at 15%, it probably is going to go to 25% in the next few months.” That has triggered a $2 billion buy from retirement funds every month, creating a domestic pool of risk capital, Desai said.

“Emphasis on FDI has completely altered India’s ability to withstand oil prices, U.S. recessions, and a relatively independent monetary policy,” Desai said. “We no longer rely on FPIs to fund deficits. As you can see in the last quarter’s BoP numbers, we surprised on the upside.”