Tomo Kinosh*to, Chief Economist-Asia, Nomura, in an interview with ET Now, gives his views on the overall economic and market situation. Excerpts:
Institutional investors in the Asia Pacific region are still underweight on India. When do you think sentiment is actually going to improve towards this country?
The fundamental reasons why the sentiment has deteriorated is that inflation has risen and that created the margin pressures onto Indian companies. We really need to see the stabilising inflation but on this front, we are likely to see further rise in WPI inflation going forward, particularly in the third quarter. Only at the end of this year, we are likely to see the moderation of inflation. That is probably the timing that investors confidence will recover in India.
Do you think China is in for a hard landing and this may improve India's position relatively?
China's economic growth is going to still be at the very high level, over 9% this year. There were many concerns about the hard landing but looking at the situation, the investment is doing pretty well in China. What is happening is that because of the higher wages and shortage of labour, the Chinese companies are trying to increase or accelerate the investment in manufacturing sector. That is actually creating pretty good investment demand and so this is actually compensating for the slowing down infrastructure investment. Because of this, we are still optimistic on China's economic growth this year.
Do you expect RBI to further hike rates on the 26th of July as is widely being expected and also do you believe the RBI is at the end of the rate hike cycle?
We actually expect the rate hike on 26th of July where we understand that in the last policy statement, the Reserve Bank of India changed its policy stance towards more hawkish stance. What they have to do is just raise interest rate but on the other hand, we are likely to see the further moderation of economic growth rate in India because of inflation and other factors. This rate hike in July is going to be the last one in this cycle.
Can India grow by 8% to 9% as guided by the government despite miniscule capital formation and high deficits?
We actually expect India's growth rate to be slightly less than 8%. India is going to miss the government target. The basic reason is that India is constrained with the insufficient infrastructure and also problem of land acquisition and also the shortage of labour force. Those factors are really important and if the economy tries to grow more than the potential rate of growth, this would create the inflation pressures, which prompts the authorities to tighten the monetary policy further. India is going to achieve around 8% growth for the next two years' time.
India going to miss government target of 8% growth: Nomura
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22 July 2011
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