The government proposed issuing US dollar denominated bonds in their budget without notifying the RBI, who subsequently advised against this given India’s large fiscal deficit.
Despite the slowdown, Mr Modi’s Bharatiya Janata party won another strong mandate in the last election, even with reform hangovers from his first term top of mind for many.
While the extensive reforms promised during the election campaign would help bridge the gap between India’s cyclical slowdown and structural potential, implementation is what matters.
This has historically been a challenge, and a headwind is the often fractious relationship between the government and the RBI.
The market is expensive, but with the solid structural story, a meaningful sell-off combined with improved policy implementation would likely create a buying opportunity for asset allocators.
Charlotte Harington is assistant portfolio manager at Fidelity International
