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India – an investment paradise

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India - an investment paradise

India today is one of the world’s fastest-growing economies and an investment paradise. The country stands to profit from a worldwide push to diversify supply chains. Consider the investment options in India.

Recent reforms by the Modi government, combined with global business lines to China being disrupted by COVID-19, have prompted investors to pay more attention to India. The country’s relatively young populace and increasing middle class are also touted as causes for optimism. This news service has published a number of stories that examine India’s potential as well as some possible problems.

In 2022, India’s GDP is expected to grow by 7%. It is anticipated to slow to 6% by 2023, although this slight reduction is unlikely to be dramatic or long-lasting. With increasing profitability, the business sector appears to be better placed to withstand the recession, while monetary policy tightening is expected to cease shortly. Although the underlying instability of the banking industry remains a concern, the firm’s basic assumption is that the cyclical downturn will be manageable.

Experts feel that India’s young population will continue to benefit the country. According to UN projections, India’s population will overtake China’s in April 2023. In the future decade, the country’s working-age population will expand faster than that of the majority of its worldwide contemporaries. According to the UN, India’s working population will grow by approximately 95 million people.

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In the face of faltering global geopolitics, India’s long-term prospects will be boosted even more. As the West seeks to diversify supply chains away from Chinese production and manufacturing, while China focuses on domestic consumption, India is strengthening its position between the two.

The attempt to make India a viable option in global supply chains appears to be paying off. India’s electronic product exports, for example, have nearly quadrupled since 2020 as companies like Apple and Samsung increased their investments in the country’s technological industry.

Pic: Social Media Matters

The PM Narendra Modi government aims to continue this trend by providing production-linked incentives totalling 32 trillion rupees ($39 billion) to businesses including automobiles, aircraft, chemicals, and electronics, as well as medical equipment and pharmaceuticals.

With these tailwinds, India may attain annual growth rates of 6 to 6.5 per cent over the next decade, notwithstanding some obstacles from the epidemic and climatic uncertainty. If the country maintains its current rate of growth, it will overtake Japan and Germany as the world’s third-biggest economies by 2033.

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Credibility of inflation

Furthermore, the credibility of its inflation-targeting framework is significantly reliant on food prices, which account for approximately 40% of the consumer price basket computed by the Reserve Bank of India. The yearly monsoon effectively dictates India’s macroeconomic policies. Building infrastructure resilience to climate instability will be critical to India’s prosperity in the medium term.

In the short run, normalizing global demand and stabilizing commodity prices could assist India in lowering domestic consumer inflation below its 6% target. In reality, headline consumer price inflation grew by a less-than-target 5.9 per cent in November compared to the previous year.

This backs up the Reserve Bank of India’s recent judgment that “the worst of inflation is behind us.” The experts anticipate that the RBI will undertake its final rate rise of 25 basis points in early 2023, after which the benchmark repo rate will be set at 6.5 per cent for the balance of the year.

A politically stable domestic perspective

The incumbent Bharatiya Janata Party is still in a strong position to win the next general election, which will be conducted by May 2024. The state election early this year challenged these assumptions.

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Because of its remarkable performance, India is already extensively held in investment portfolios. India accounts for 15% of the MSCI Emerging Markets Index, which is half the weight of China and nearly three times the weight of Brazil. Nonetheless, Indian shares are trading approximately 30% higher than their long-term norms, or 21 times forecast profits, well outperforming the larger MSCI World index.

Earnings growth of more than 15% is expected in both 2023 and 2024, according to consensus estimates. India will continue to benefit from its strong industrial focus on digitization at the sectoral level. However, the value of Indian shares remains high for the time being, making them less tempting.

With interest rates at 6.25 per cent in December and another raise projected early in 2023, India’s government bonds appear attractive in local currency when compared to other emerging sovereign debt.

India’s bonds may experience more international interest because of their high carry yield and investment-grade credit rating of ‘BBB-‘ from Standard & Poor’s. Inclusion in key bond indices would increase their appeal even more. At this point, we prefer shorter-term Indian national debt; however, longer-term bonds may become more appealing later in 2023.

The Indian rupee has fallen in value relative to the US dollar, falling from roughly 40 rupees in 2005 to around 80 rupees now. This is attributable mostly to India’s higher inflation rate as compared to trading partners.

Experts believe that the rupee will not directly benefit from China’s expanding economy in the next few months since increased commodity prices will maintain India’s large current account deficit. Any external inflows into stocks will be offset by the central bank replenishing its foreign currency reserves.

The RBI will try to avoid any jumps in the dollar-rupee exchange rate in order to maintain the Indian currency’s high yield and volatility compared to many of its emerging counterparts. Over the next 12 months, the markets expect the currency to trade in a range of 80 to 84 rupees against the dollar.

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Vipul Tamhane
Vipul Tamhane
Vipul Tamhane is an Anti-Money Laundering and Combating Terrorist Financing (AML/CFT) specialist with expertise in international business, and Commercial Law. He is a visiting faculty at Pune University's Department of Defence and Strategic Studies, where he teaches Counter Terrorism to Masters and Postgraduate Diploma students. He is the Founder and Editor-in-Chief of Diplomacy Direct, an upcoming national-interest think tank dealing with counter-terrorism, national security, geopolitics, and international diplomacy.


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