A higher share of retail deposits and lower asset liability management (ALM) gaps is the other key positive for Indian banks. Image Credit: PTI

Dubai: Aditya Birla Sun Life Asset Management Company Ltd has maintained a positive outlook on the Indian banking sector despite growing uncertainties and recognised the potential risks associated with a global economic slowdown.

The investment management company is confident that Indian banks will perform comparatively well during this phase and remain a bullish asset class, along with the automobile and infrastructure sectors.

The banking and financial sectors remain highly desirable due to their well-capitalised balance sheets and potential for growth at 18-20 per cent, said A. Balasubramanian (Bala), Managing Director and CEO of Aditya Birla Sun Life Asset Management Ltd.

“Credit growth has also been growing at 30 per cent. Household debt is under control, savings rates are rising, and inflation is more controlled compared to the global market,” said Bala. A higher share of retail deposits and lower asset liability management (ALM) gaps is the other key positive for Indian banks.

From an NRI perspective, however, matters are status quo. “There is no change in the capital gains tax in India. “The way now you have to look at it is, India in any parameters much more stable, whether it is on interest rate movement or currency,” said Bala. A robust policy framework will drive the country’s growth for the next 25 years, after which India will likely become a $26 trillion economy. “Non-resident Indians should continue seeing India as an investment destination,” he added.

Good time to invest in India?

India’s economy grew by 4.4 per cent in the last fiscal quarter, down from 6.3 per cent in the previous quarter. Economists had expected closer to 4.6 per cent. But this still puts India’s average annual GDP growth for last year at about 7 per cent, making it one of the world’s best-performing economies.

By comparison, the World Bank projects the global economy will grow just 1.7 per cent this year—the third-weakest pace of global growth in almost three decades.

According to Bala, India is in a favourable position in the current global context, with a growing GDP of 8.7 per cent, potential for growth at 9 per cent, and better employment rates. Indian companies have better debt-to-equity ratios and are deleveraging their balance sheets, allowing them to invest in higher-return businesses.

India also is significantly cushioned from energy crises, and the effect of high global oil prices is limited. “We also got some kind of advantage from buying oil at lower prices, and when the global demand was not enough, India could absorb some of the demand by supporting the global economy or oil-producing countries,” he said.

India’s tolerance for global macroeconomic challenges is higher, and investors are optimistic about the future.

“India remains a top destination for foreign investors due to its strong economic fundamentals and policy framework—the country’s stable political environment and reform orientation comfort overseas investors,” said Bala.

Additionally, the interest rate and currency momentum are more controlled than in the past. Bala believes that investments in infrastructure, road, and power assets in India have a bullish sentiment, making them attractive to pension funds and other investors.

India’s growth potential and favourable investment climate make it an appealing choice for foreign investors.