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Why is an ace investor exiting Indian stocks?
Fri, 4 Sep Pre-Open

Social media woke to the news this morning that Jim Rogers has exited India. As per an article in Livemint, the commodities guru has sold all his holdings in Indian companies. The reasons, as he states, are the NDA governments' flawed policies as well as the insufficiency to live up to investors' expectations. He further expressed his disillusionments on many aspects. Let's have a look at some of them.

The wait for reforms

Much is said but less is seen on the reforms pledged by the NDA government. Although some reforms were initiated, the fierce resistance by public curbed them down. Even if the implementation goes well now, it won't move markets any higher. This is because the markets have already factored them in. Hopes can be revived only if the reforms exceed expectations. Unfortunately, no such signs as of now.

The global slowdown

Another blame for the sell-off was placed on the turmoil in global markets. The global downturn has impacted domestic markets. India will surely get impacted further if markets all around remain in trouble. Jim said that markets don't look like regaining their lost ground for the next year or two. Also, what makes India less attractive for investment is its firm position as against depressed economies. Investors are placing their stakes in those depressed markets rather than India, expecting higher returns.

High debt-to-GDP ratio and numerous regulations

The debt-to-GDP (gross domestic product) ratio for India is placed higher than many countries. Simply stated, this ratio compares the government debt as against the GDP of a country. It measures the ability of a nation to function sufficiently and pay back debts without incurring further debt. A high debt-to-GDP ratio comes as a threat. This is because countries with high debt-to-GDP ratio find it difficult to grow at a reasonable rate. Moreover, India is held back by too many restrictions and regulations. These laws have limited the scope of foreign inflows. Foreign investors are fed up with this mess and hence limit their exposure to India.

In conclusion, much needs to be done by the government to gain back investor trust. An environment needs to be in place that gives confidence to foreign as well as domestic investors of investing in the country for the long haul.

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Mar 22, 2018 (Close)