Economy blessed with internal consumption

While the world tries to revive weakening economies, the investment case for India has only strengthened under the current circumstances, even though these are largely made worse by COVID-19.

India’s main attraction as an investment destination has been its higher growth, relative to most markets, whether emerging or developed, says Praveen Jagwani, CEO, UTI International.

While the global economy will contract due to already weak economies further hit by the deadly coronavirus, the Indian GDP growth is set for 2% and above, according to recent forecast by international rating agencies.

Comparatively, India grew by 6%, double of the 3% global average in recent past.

The Indian economy is blessed by the internal consumption of a very large and young middle class. This relative advantage remains intact, says Jagwani.

Low oil has always been good for India, which imports over 80% of crude oil and is ranked as one of the world’s largest energy importers. Oil prices have had their worst quarter, falling 65% in the face of collapsing demand.

India’s 2020 current account deficit could be close to zero, if the oil prices are maintained, according to Jagwani who highlights relative advantage of Indian economy.

Jagwani highlights:

Savings from the oil import bill would help the Indian Government design a formidable stimulus package for the Indian economy. It has already worked out two rounds of financial packages for boosting the economy and the industry at large.

The disruption of global supply chains caused by trade wars, namely US-China tariff issues, has only been exacerbated by the pandemic. Additionally, the Chinese factory shutdown has jeopardized global manufacturing in a multitude of sectors.

India, with its improved ability to attract business in recent years, is working on strategies to capture a good share of international markets. It can strategically gain in the global markets from the loss of Chinese share.

An increasing number of international companies are in the process of diversifying global manufacturing bases, with their first choice being India for its huge domestic market size as well as export potential, given New Delhi’s friendly diplomatic and trade relations across the world.

Less debt

The Indian economy’s public debt is the low at 68% versus GDP. Comparatively, the rest of the world has a great challenge in managing a record high of 322% debt as per data of December 2019.

The yield on the 10-year US Treasury note, for the first time in history, fell below 1% in March 2020. It will only worsen with rising unemployment and intensifying fiscal stimuli.

Some companies may be bailed out at the taxpayer’s expense, but widespread job losses will harm consumption, particularly in highly leveraged societies, especially in the US, UK and Europe.

In stark contrast to the rest of the world, India’s household debt is minimal and a likely catalyst for the resulting economic recovery. The consumer-driven Indian economy has recovered fast from economic slowdowns in recent past.

Assessment

The Indian market has suffered as has been the case with major economies which saw a massive outflow of investors looking for security and liquidity leaving emerging markets. India is one advancing and major emerging economy in that category.

In March 2020, foreign investors withdrew nearly US$16 billion from India (debt and equity combined) against an inflow of US$12 billion in 2019.

The vast majority of foreign investments in Indian stocks is done through ETFs which have been the most severely repaid.

As seen from past corrections that once a certain degree of normality returns, India’s attractiveness as a growth market is expected to win back investors quickly. “We can expect a rebound once again.

“We see buying opportunities, especially that MSCI is considering increasing India’s weight on the EM index in its August 2020 review,” Jagwani said.

The Indian rupee, though trading past 76.00 to the US dollar these days, is still reasonably stable due to its inherent structural strength. A weak rupee is good for exports and makes it cheaper for inflow of fresh investments. fiinews.com

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