ETMarkets Smart Talk-Shiv Sehgal of Nuvama explains why he calls India’s investment thesis as 5D advantage

economictimes.indiatimes.com:

“We call India’s investment thesis a 5D advantage: De-globalisation, Deregulation, Debt, Demography and Democracy,” says Shiv Sehgal, President & Head, Nuvama Capital Markets. In an interview with ETMarkets, Sehgal said: “The reforms undertaken by India in the last ten years were necessary, tough and painful, and are tantamount to a second unshackling of India after the 1990s’ liberalisation” Edited excerpts:US downgraded triggered some nervousness in equity markets across the globe. Back in India investors got a reason to sell or book profits. Do you foresee any long-term impact on other asset classes? Fitch’s downgrade move follows a similar cut by S&P about 12 years ago.

Moody’s continues to rate the US AAA. Nothing Fitch says is wrong, but nothing it says is new either and there aren’t any real-world implications of the downgrade (as far as covenants being tripped or people not being able to own Treasuries). In my view, US stocks given the recent ramp up are quite expensive, and this leaves them very exposed to exogenous events, but as we saw with the BOJ last week, if the macro development isn’t material, equities will be quick to reverse a knee-jerk sell-off.

In my view — the downgrade of US debt is largely a non-event. Historically, such rating changes have had little impact on long-term growth/cost of capital. In 2011, when rating agencies had downgraded US debt, it had little impact on markets ahead and in fact, US bond yields rallied.

So, the long-term impact is likely to be muted. However, the challenge is not the downgrade, but the rising US fiscal deficit and borrowings at record-low unemployment. This could potentially result in crowding out of the private sector and keep rates elevated for longer than that