Warren Buffet’s “Never bet against America” statement underscored his long-held belief in the American dream and its capacity to unleash human potential. Well, now the same can be said for India. India, replaced the UK last year and became the fifth-largest economy in 2022. In the last 30 years, India has stood out among other emerging markets, growing resiliently throughout all ebbs and flows.
As the world teethers around recessionary fears, India has emerged as a bright spot. The resilience it has demonstrated in the past two years is a testament to its arrival on the world stage. China now has taken a back seat not just because of its covid zero policy-led slowdowns but because of structural flaws in its real estate market and the tech crackdown.
Global leaders and economists deeply believe in India’s strong ability to be the best bet to attract global investments amidst the China+1 theme gaining ground.
India is expected to record a GDP growth of 7% in FY 2022-23, making it the fastest-growing economy in the world. Its booming startup and investments from corporates into green energy, deep tech, and technology will drive India to its short-term goal of being a $7 trillion economy by 2030 very soon at this rate.
India’s index has massively outperformed compared to China’s and the MSCI Emerging Market index. While Nifty is up by 70% in the last 5 years, MSCI Emerging Markets and China’s Hang Seng Index are down by 14% and 28% respectively. This underscores the growth potential and hence the premium India should command versus its peers.
Will Adani’s fiasco derail this growth engine?
India is under the speculative gaze of the world as one of its biggest conglomerates was brought down to its knees by market volatility after an American short-seller released a report on the Adani group which resulted in the Adani group stocks losing over $100 billion of market valuation in less than 10 days. Some of the stocks have recovered over the next few trading sessions but this has revealed gaping holes in the Indian corporate governance standards. While the allegations mentioned in the report are under investigation, it has raised bigger, darker questions about India’s credibility as a global growth engine and a destination for international investors.
Reasons why India will continue to outperform
From good savers to smart investors
Indians are excellent savers and this habit of thrift has helped them survive the challenges of the pandemic. India saw a major jump of 19% y-o-y in SIP collections and the number of Demat accounts has soared to over 10.6 crores.
According to Crisil, India’s managed investment kitty, including mutual funds, insurance, alternate investment funds (AIFs), pension funds, and portfolio management services (PMS) grew from Rs. 63 lakh crore in FY2017 (41% of GDP) to Rs. 135 lakh crore in FY2022 (57% of GDP). This has helped the financialization of savings.
Manufacturing and capex Push
The current government’s continuing re-orientation away from revenue spending to capital expenditure will help build a solid foundation to help India’s leap to a $7 trillion economy by 2030. The Union Budget had a planned capital outlay spike of 33% in capital expenditure which demonstrates the government’s commitment to sustainable investments to support growth. The outlay of Rs. 13.7 lakh crores towards roads, railways, airports, environmental protection, and energy projects will boost the economy by providing the support the manufacturing sector needs and attracting more private investment.
The Budget had the option of spending more on revenue heads, with a consequently higher fiscal deficit, but chose to follow fiscal discipline instead. This policy of fiscal prudence will not only reduce the Current Account Deficit but also help rein in India’s fiscal deficit strengthening the currency and increasing the country’s forex reserves. This will encourage capital flows to the country and act as a buffer in case of any exogenous shocks in the global environment. China’s re-opening, reducing fears of war in Europe and the slowdown of the pandemic, is set to revive international trade. Adding to the double benefit of domestic growth and exports will further stabilize the rupee.
Tech and startup focus
India has ranked fourth globally (after the US, China, and the UK) in Venture Capital investments bringing in $24.1 billion in the last year specifically in technological services despite the challenging macro environment. India has a buzzing startup environment with Banglore at the helm receiving more than $10.7 billion in funding, making it one of the world’s top 5 funding destinations in the world.
India has invested a lot of time and money in the digitization of the economy, from filing income tax to banking everything is now at our fingertips.
While the recent market turmoil has revealed the problem of stretched valuations, the government has faith in the resilience of the Indian banking system. Adani’s problems or whatever they might prove to be, are likely to be limited to the corporate alone and do not indicate a systemic failure due to limited and manageable exposures of banks.
That being said, India needs to work on its corporate governance and due diligence standards. Regulators must focus on conducting thorough due diligence and better enforcement of the existing regulations.
That being said, India has a vast population advantage and this relentless performance over the last 30-odd years is unlikely to be derailed by this Adani mayhem. It will clearly need a very brave person to bet against India.
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