With stocks in India said to be overpriced and the nation’s central bank expected to raise interest rates to quell inflation, the rate of growth of India’s economy will undoubtedly slow in coming years, the Associated Press reports, citing fund managers.
Certainly, there were signs of that on Tuesday, when the Reserve Bank of India required banks to hold more deposits in cash in order to slow the economy. Also, the amount of money that foreign investors put into Indian stocks and mutual funds slowed in January.
“If you have a car speeding along and it hits a speed bump, the aftershock is going to be that much greater the faster the car goes,” reasoned Andrew T. Foster, director of research at Matthews International Capital Management, an investment advisor that specializes in Asian investing.
“It has been a sustained bull run for the past three years, [making] India one of the most expensive markets in the world,” said Dhruva Raj Chatterji, a research analyst with Lipper. Earnings growth has averaged 20% in recent years, putting “valuations are kind of [on] the higher side,” Chatterji added.