'Markets await devil in the details of India-EU FTA'

Markets are busy as they deal with the Union Budget, the free-trade agreement (FTA) between India and the European Union (EU), corporate earnings, and the geopolitical situation.

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Nilesh Shah, managing director of Kotak Mahindra AMC, tells Puneet Wadhwa in a telephonic interview that a “meaningful valuation re-rating” of Indian markets is difficult at present. Edited excerpts:

How important is the India-EU trade deal for markets?

One needs to keep expectations realistic at this stage. Execution of the FTA will take time. From a market perspective, the announcement itself is not as important as the underlying details.

From the EU’s standpoint, for instance, sourcing garments from India or Bangladesh does not make a material difference. However, the EU has very limited export potential to Bangladesh, whereas India represents a large and growing consumer market. If the deal results in better access for Indian exports, such as garments, while also selectively opening the Indian market, it could create a far more meaningful economic relationship. That kind of give-and-take puts both sides in a much stronger position. The market’s response, going ahead, will depend entirely on the specifics — because, as always, the devil lies in the details.

From a purely market standpoint, this is a positive step and clearly in the right direction, but until clarity emerges on the finer points, it is unlikely to have a significant impact on market behaviour.

Does the FTA put market’s concerns about the India-US trade deal to the backburner?

Not really; the market has already factored in delays in the India-US trade agreement. Investors are no longer reacting to timelines alone. Once again, the key determinant will be the quality of the deal.