FII reversal likely on strong governance amid 6.5% growth outlook, says Piramal's Debopam Chaudhuri

Speaking in an exclusive interview with ANI, Debopam Chaudhuri, Chief Economist at the Piramal Group described this as a temporary "fear psychosis" common to emerging markets during global crises, rather than a structural exit from Indian valuations.

Pointing to a slowing Chinese economy, he expressed strong long-term optimism for India.

"I am pretty hopeful that once the crisis resolves...there will be an inflow reversal of FII investments into the country given India's inherent strengths in the form of stable governance, a strong judiciary base, as well as an economy expected to grow at more than 6.5% in the medium to long run," Chaudhuri affirmed.

Chaudhuri also noted that while global headwinds have generated near-term volatility, India's robust fundamentals will ultimately drive a strong recovery.

"This significantly large RBI dividend corpus will go to a certain extent in helping the government better manage the otherwise expected-to-expand revenue deficit or fiscal deficits," Chaudhuri stated.

He added that while maintaining the exact budgeted fiscal deficit of 4.3 per cent of GDP might be challenging, the central bank's record transfer ensures that "the numbers will not be significantly higher than that."

Analyzing the recent steep depreciation of the domestic currency, which saw the rupee cross the 95-97 corridor against the US dollar, Chaudhuri attributed the volatility to back-to-back exogenous shocks, including aggressive trade tariffs by the US administration and the escalating Gulf crisis.

"It is most likely that currently the rupee is undervalued, so there are a lot of opportunities in the future once global uncertainties scale back for the rupee to gain back some of the lost strength," he observed.

Weighing in on the financial architecture, Radhika Rao, Senior Economist & Executive Director at DBS Bank, highlighted that the macroeconomic strain is deeply affecting the fixed-income space.

"India's bond yields are being shaped by prolonged geopolitical uncertainty, which is affecting fiscal expectations, alongside elevated global yields and a weaker rupee," Rao noted. "Until most of these triggers subside, long-end yields are likely to stay elevated to build in sufficient risk premiums."

Commenting on the central bank's historic payout, Rao explained that the arithmetic was closely tied to a lower risk buffer.

"The RBI announced a record INR 2.87trn (0.7% of GDP) dividend contribution towards the FY27 Budget, up 7% on the year. The RBI maintained its contingent risk buffer (CRB) at 6.5% of the 4.5-7.5% range. Had the CRB being maintained at 7.5%, the dividend payout would have been ~INR920bn lower than the announced levels," she said.

While details are awaited, Rao pointed out that higher income likely stemmed from higher interest receipts from G-secs and foreign exchange trade income (even as gross FX sales in FY26 were lower than FY25), which helped to offset provisioning needs and a potential mark-to-market (MTM) miss.

However, since the scale of the dividend aligns closely with budgeted expectations, additional revenue boosts remain capped.

"With the scale of the dividend being along budgeted lines, there will be limited additional boost to revenues. Allocations towards subsidies (energy and fertiliser +0.2% of GDP) is likely to increase this year, alongside a potential divestment shortfall, lifting spending needs," Rao cautioned.

Rao added that these spending pressures can be balanced through other macroeconomic levers. "These can be partly mitigated by a higher nominal GDP (providing cushion to ratios), besides the backstop of the economic stabilisation fund (size is 0.25% of GDP), and a reduction in capex/non-sticky spending items. Setting off both sides, cumulative slippage risk stands at ~0.2-0.3% of GDP vs -4.3% budgeted deficit."

Regarding equity markets, Rao agreed that near-term pressures remain strong. "Despite the recent correction in the equity markets, elevated valuation premiums remain difficult to justify amid a challenging geopolitical environment, rising cost pressures on businesses, moderating earnings growth and thematic shifts," she stated.

"From a cyclical trough, we expect the markets to gain ground when exogenous shocks subside and provide room for sentiments to stabilise," Rao said. (ANI)