India remains a favourite among the US investors due to ‘Modi-Rajan-Commodity’ trinity, a Citi report has said. This report is based on the feedback gathered in meeting with 50 US institutional investors.

Absolute, relative play The report on India Macro View, authored by Rohini Malkani and Anurag Jha of Citigroup India, said India remains favourite both as an ‘absolute’ and ‘relative’ play due to Business-friendly Modi, pro-active RBI Governor Raghuram Rajan, and commodity tailwinds.

“Following a strong market performance this year, most investors were of the view that the ongoing cyclical and structural upturn could result in India continuing to outperform in 2015, albeit at a modest pace,” it said.

The report has noted policy measures initiated by the Prime Minister Narendra Modi in sectors such as energy, foreign direct investment, labour, mining, finance, information technology, rural development, environmental clearance for industrial projects and food inflation.

For Rajan, it has clubbed various policy measures in ‘five pillars’ comprising monetary policy, banking expansion, market broadening, financial inclusion and restructuring or distress management. In terms of commodities, the report mentioned, sharp decrease in crude prices (over 40 per cent since June).

Noting over 2 per cent weakening during last one month in rupee against green bucks, the report said dollar gaining strength was expected and mainly due to divergent global monetary policies, the sharper-than-expected fall in crude oil and recent rouble depreciation. “Despite its improving fundamentals, India is clearly not insulated. However, it is relatively better off considering facts such net importer of crude oil, improving macro fundamentals and rising forex reserves and forward positions,” the report said.

Key Risks Despite all the good things, the report has also asked a pertinent question, ‘what could go wrong?’

The replies it has got said pointed towards memories of the 2013 taper tantrums resulting in investors remaining on guard and watching out for potential risks. It has listed four key concerns — growth is not coming-in as fast as markets have priced them, especially in the context of another large market move; bad debts of banks; potential standoffs in the upper house can dent the reform momentum; and there is limited space on the fiscal side.

The report said that unlike the 2013 taper tantrums, when the country had a high current account deficit, elevated inflation and weak growth, India’s fundamentals have improved.

“However, we reiterate there is no room for complacency as generalised emerging market risk aversion could result in reversal in portfolio flows and external debt deleveraging.

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