According to Gorman, the rupee’s depreciation is not a reflection of poor economic management, rather an “unfortunate consequence” of external factors.
The beating the rupee has taken this year may have spooked international investors, widened the current account deficit and caused the Modi government much grief, but one of the world’s biggest investment banks does not think it’s a concern. On the contrary, Morgan Stanley CEO James Gorman reportedly continues to bet on India.
“For India, all I can say is it’s an important focus for us right now as there are tremendous needs and opportunities given the growth in the population and economy. It’s something over a period of time I may have more announcements to make,” Gorman told The Economic Times on his first trip to India in seven years.
He added that Morgan Stanley will expand its businesses and invest more capital in the country as Prime Minister Narendra Modi’s business-like approach to governance, “clarity of action” and “trade-friendly policies” makes it an exciting opportunity for investors and industry. “The foresight to recognise that you can through technology jump over various stages of development, take advantage of the fact that you don’t have legacy systems in a lot of industries. I think these are very positive,” he said.
According to Gorman, the rupee’s depreciation is not a reflection of poor economic management, rather an “unfortunate consequence” of external factors. “The rupee trades on account of what the dollar is doing, and not on account of what the rupee is doing right now. It’s the tail wagging the dog. At this point the reality is that what is going on in the US – all the potential tariff wars are roiling all the emerging markets. It started with Venezuela and Turkey and is now affecting all emerging markets,” he explained.
Referring to developments such as GST, the freer foreign direct investment regime, IBC, Aadhaar, increasing banking penetration, and large-scale infrastructure development, Gorman pointed out that India is witnessing a lot of changes that are “durable” and impervious to regime changes at the Centre. “Once you are getting into $3-trillion level economy and getting some of the reforms in infrastructure and bringing banking to a broader population, these are huge positives for the economy and this is going to attract foreign players interested in participating in this market, some through M&A. I think we will see more M&A activity over the next 10 years compared to the last 10,” he added.
He further hinted that the US-based lender will be expanding into new areas and that details will be released soon. “We will be broadening [in India]… also, on the fixed income side, there is a push by the central bank to deepen the debt capital markets here and I think debt trading is something we are very good at and infrastructure finance is something we are very good at so they are the two things that I would point you in the general direction of.”
On the current turbulence in the global financial markets, Gorman made it clear that he did not think the world is headed towards a new financial crisis. While he did flag off issues that aren’t positive for global growth, including tariff wars and protectionism, he believes the “global economy is very strong”.
The strengthening dollar and rising US interest rates have caused capital to flow out of emerging, including India, in recent times. This, in turn, has forced central banks to raise interest rates. According to Gorman, rising rates reflect the strength of the economies and the current cycle is just normalisation of money markets to avoid an asset bubble.”Obviously, with the unwind, there will be more turmoil in the global markets. We will see more volatility but not at the level we have had through much of the last three or four decades,” he added.