Increased risks of persistent inflation leading to rate hikes could aggravate global risk aversion, which could, in turn, impact flows to EMs (emerging markets), including India, said Anand Radhakrishnan, managing director and chief investment officer – emerging markets equity - India, Franklin Templeton, in an interview with Mint.
Radhakrishnan said the markets are building in expectation of slower-paced rate hikes by global central banks due to the recent moderation in inflation. However, contributors to global inflationary pressures continue to persist in the form of robust retail spending, accelerating wage growth and strong monthly job gains.
"Any spike in commodity prices led by heightened geopolitical frictions could pose a risk to the global inflation trend," he said.
Radhakrishnan believes emerging market economies are relatively better placed to navigate global slowdown due to lower inflationary pressures and reasonably resilient domestic demand.
Among EMs, India is projected to grow at a faster pace than the rest of the world, he said.
Structural growth drivers, as per Radhakrishnan, include domestic orientation, improving internal demand and investment growth, opportunities from global supply chain diversification and policy measures for manufacturing and infrastructure development to induce sustainable growth.
On the other hand, near-term risks include spillover effects of the slowdown in major economies, lower export growth, strengthening dollar placing a drag on the rupee, trade deficit levels and forex reserve levels, said Radhakrishnan.
Radhakrishnan expects domestic cyclical, including banks, cement, consumer discretionary, realty, and materials sectors to do well in 2023. He expects the technology sector to be somewhat impacted by the global growth slowdown.
Disclaimer: This article is based on a Mint interview. The views and recommendations given in this article are those of the analyst. These do not represent the views of MintGenie.