The emphasis on so-called ‘Modi mania’ and the impact of a falling oil price overlooks the important work India’s chief central banker Raghuram Rajan has done in his short tenure.
Rajeev De Mello, who is head of Asian fixed income at Schroders, said Rajan (pictured) has worked hard to create a framework for future growth since his appointment in September 2013.
Speaking at a roundtable event in London, De Mello said Rajan’s work had been particularly effective with regards to inflation in India.
‘A lot of the new policies under Narendra Modi are important but some of the biggest changes are those enacted by Rajan when he was installed at the Reserve Bank of India, which provided a lot of major stability measures,’ he said.
‘That was what helped stabilise the country in 2013 and then we had the onset of Modi regime, which has helped as well. As bond investors we are very focused on the level of inflation, which is currently low, and that was triggered by Rajan.’
Rajan introduced an inflation target shortly after assuming office and has cut the CPI inflation rate from 11% in late 2013 to 5.5% one year into his tenure. This marked a five-year low for the country, which has since dropped further to 5.17%.
Furthermore, India, like Indonesia, had used the fall in the oil price to reduce the use of fuel subsidies in the country, which De Mello praised as effective timing.
When asked whether Rajan had done enough to allow India to shed its ‘fragile five’ tag, De Mello said: ‘Rajan came in just after the so-called Taper Tantrum and really took measures to improve stability and protect the currency.
‘The currency weakened last week after a strong performance but still has attractive parts to it. Part of the measures were aided by oil coming down and if positivity in general is there for global equities, this will feed through to India.
‘One change we have witnessed is a lot of people were going long India and short China. China has recovered a bit, especially after a strong rally in April, and people are now starting to take off this trade but we remain positive.’
De Mello, who is a named manager across five Asia and emerging market bond funds, said he is currently overweight or long local currency Indian bonds in his portfolios.
He said the market also has room to grow from a relatively low point, which is between Korea and Spain in terms of depth of market, but currently has an average yield of 7.8%. Government bonds have an average rating of BBB- at present.