India’s Robust Macroeconomic Management Shields Markets from Major Drawdowns:S.Naren

Ira Singh
Khabar Khabaron Ki,10 Nov’23

In a recent conversation S. Naren, the Chief Investment Officer (CIO) of ICICI Prudential, reportedly asserted that India’s equity markets are unlikely to witness significant drawdowns as long as the country continues to exhibit strong macroeconomic indicators. The veteran fund manager highlighted the pivotal role played by indicators like the current account deficit and inflation, emphasizing the prudent management of these factors over time.This works in favour of equity markets. However, if macros go off-track markets could be adversely impacted as experience in other economies have shown, Naren pointed out.

“If you manage macroeconomics well, some of the problems disappear but if you manage the macroeconomics badly and current account goes into a bad shape, inflation goes into a bad shape or even fiscal deficit cannot be funded properly then you have a disaster. So, if at some point of time in the future, the macroeconomics gets into trouble, we can expect to see big corrections,” Naren said.

Naren said that the experience of other countries shows that whenever there were big corrections, it was because of badly managed macros. For example, in the US, interest rates went up because inflation went up. “Macroeconomics being managed is very important for markets to be well behaved,” he said.

In India, the interest rate hike has been very little, because macro has been managed much better. But he adds that if that goes for a toss in the future, it can result in a serious drawdown. While the market over the last few months has seen volatility, Naren said that chances of India experiencing a 2008 like scenario seems unlikely because of the current strong macros.

From an investor point of view, Naren adds the risk in India right now is not macroeconomics but higher valuation relative to the world. “So, it’s very nice for me to say it is a risk, but I won’t be able to tell you when high valuations results in money leaving India and going into some other parts of the world. I can’t predict that because the reality is valuations can stay higher for longer because India is a good structural story,” he adds