13 December 2018
This content was correct at the time of publication and is no longer being updated.
RBI governor’s resignation and appointment of Shaktikanta Das
The resignation of the RBI governor Urjit Patel this week, nine months prior to the end of his tenure, came as a surprise despite the ongoing differences between the RBI and the government. This is only the second time in history that an RBI governor has stepped down before the end of their term. The market opened lower on the news given the implications for the currency, interest rates and markets in general over the medium to long term.
The government moved swiftly to appoint Shaktikanta Das as the new governor. As economic affairs secretary from 2015 to 2017, Das has worked closely with the central bank. He is currently the government’s representative at G20 summits. We believe his appointment should help settle markets.
There is only limited scope for tinkering with interest rates, given that the inflation targeting framework is a mandate for the RBI. The central bank is also likely to continue its policy on bad loan recognition and the bankruptcy process. However, it might now take a more flexible approach in dealing with the liquidity situation and loans to small and medium enterprises (SME).
BJP’s loss in three state-level elections
The Modi-led Bharatiya Janata Party (BJP), lost three key state elections to the opposition Indian National Congress party. Although Modi’s party faced anti-incumbency in all three states, the election results indicate the revival of the Congress party and the increased potential for it to lead a coalition of anti-BJP parties. This also creates heightened uncertainty for markets ahead of the national elections in May 2019.
For corporates, this uncertainty may lead to a further push-back in the private sector capex cycle. However, if we look beyond the near-term uncertainty, the situation looks more promising. Banks and private sector balance sheets have been cleaned up over the last five to six years and capacity utilization has been slowly inching up.
We believe the investment cycle should pick up irrespective of either a BJP or a Congress-led government following next year’s election. The worst-case scenario would be if a coalition of smaller parties (a third front) formed the next government, without a clear vision for the future. However, we do not expect this outcome.
The earnings cycle in India has been weak in recent years and a recovery in earnings has not yet materialised. Meanwhile, valuations have corrected to more reasonable levels. Markets could remain volatile in the near term, but India’s longer-term structural growth story remains intact. And we are unlikely to see a major shift in domestic policy direction under either a BJP or Congress-led government.
The value of investments and the income from them can go down as well as up so you may get back less than you invest. Past performance is not a reliable indicator of future results.
These materials are provided for information purposes only and are intended only for the person or entity to which it is sent.
These materials do not constitute a distribution, an offer or solicitation to engage the investment management services of Fidelity, or an offer to buy or sell or the solicitation of any offer to buy or sell any securities or investment product.
Fidelity makes no representations that the contents are appropriate for use in all locations or that the transactions or services discussed are available or appropriate for sale or use in all jurisdictions or countries or by all investors or counterparties.
Investors should also note that the views expressed may no longer be current and may have already been acted upon by Fidelity. They are valid only as of the date indicated and are subject to change without notice.
This material was created by Fidelity International. It must not be reproduced or circulated to any other party without prior permission of Fidelity.
This communication is not directed at, and must not be acted on by persons inside the United States and is otherwise only directed at persons residing in jurisdictions where the relevant funds are authorised for distribution or where no such authorisation is required. Fidelity is not authorised to manage or distribute investment funds or products in, or to provide investment management or advisory services to persons resident in, mainland China. All persons and entities accessing the information do so on their own initiative and are responsible for compliance with applicable local laws and regulations and should consult their professional advisers.
This content may contain materials from third-parties which are supplied by companies that are not affiliated with any Fidelity entity (Third-Party Content). Fidelity has not been involved in the preparation, adoption or editing of such third-party materials and does not explicitly or implicitly endorse or approve such content.
Fidelity International refers to the group of companies which form the global investment management organisation that provides products and services in designated jurisdictions outside of North America Fidelity, Fidelity International, the Fidelity International logo and F symbol are trademarks of FIL Limited. Fidelity only offers information on products and services and does not provide investment advice personal recommendations based on individual circumstances.
Issued in Europe: Issued by FIL Investments International (FCA registered number 122170) a firm authorised and regulated by the Financial Conduct Authority, FIL (Luxembourg) S.A., authorised and supervised by the CSSF (Commission de Surveillance du Secteur Financier) and FIL Investment Switzerland AG, authorised and supervised by the Swiss Financial Market Supervisory Authority FINMA. For German wholesale clients issued by FIL Investment Services GmbH, Kastanienhöhe 1, 61476 Kronberg im Taunus. For German institutional clients issued by FIL Investments International – Niederlassung Frankfurt.
In Hong Kong, this content is issued by FIL Investment Management (Hong Kong) Limited and it has not been reviewed by the Securities and Future Commission. FIL Investment Management (Singapore) Limited (Co. Reg. No: 199006300E) is the legal representative of Fidelity International in Singapore. FIL Asset Management (Korea) Limited is the legal representative of Fidelity International in Korea. In Taiwan, independently operated by FIL Securities (Taiwan ) Limited, 11F, 68 Zhongxiao East Road, Section 5, Xinyi Dist., Taipei City, Taiwan 11065, R.O.C. Customer Service Number: 0800-00-9911#2.
Issued in Australia by Fidelity Responsible Entity (Australia) Limited ABN 33 148 059 009, AFSL No. 409340 (“Fidelity Australia”). This material has not been prepared specifically for Australian investors and may contain information which is not prepared in accordance with Australian law.