The capital outflow from India is less a verdict on India and the attractiveness of India as an investment destination. The outflows are a reflection on investors de-risking just given everything that's happening more broadly, said Gokul Laroia, co-head of global equities and CEO of Asia Pacific at Morgan Stanley, in an interview with ET Now.
Laroia added valuations are stretched. On a relative basis, India trades at 19 times earnings. MSCI EM trades at 10 times earnings, China trades at 9 times earnings.
Laroia said he was very positive on Indian as an investment destination. "Assuming India grows at anywhere between 7 percent and 9 percent over the next several years, that's a complete outlier from a positive perspective," said Laroia.
"There is no major economy globally that we expect to be even close. The US and Europe will slow. Growth in China this year is going to be closer to 4 percent. It'll recover next year, but it's not going to hit the 8 percent or 9 percent that we're talking about for India," Laroia added.
Howver, Laroia pointed out that high cost of energy, food, fertiliser, interest rates and reduced liquidity will have an impact.
"On a relative basis, that's offset by the growth profile of the economy. India in the context of other EMs is much better. There are higher foreign exchange reserves and reduced oil intensity of the economy are both very important in the current environment," he told ET Now.
Talking about monetary tightening by the Fed, Laroia said the Fed will continue to tighten till such time as inflation is more manageable.
"It's quite clear that it's unlikely that the 2 percent target will be achieved anytime soon. Our assumption is that the Fed will continue to tighten in terms of rates and shrink the size of its balance sheet till such time that the objective is achieved. What's also clear is that other major central banks are going to follow. The one exception is the Bank of Japan. Outside of that, every central bank in the world is going to be tightening," said Laroia.
Disclaimer: This article is based on an ET Now interview. The views and recommendations made above are those of the analyst and not of MintGenie.