At the time of writing this, we are in the midst of the festive season. Deepavali, arguably the biggest PAN India festival that celebrates victory of Light over Darkness, Good over Evil and Hope over Despair, is round the corner. We celebrated Dussehra a few days ago, killing our inner demons, including those of fear, lack of self-belief and pessimism. It getting clearer that India is a better investment bet, after the recent global crises.
Ukraine and Russia War Impact – India Is a Better Investment Bet
The global sentiments do not appear to be as cheerful and optimistic. The largest economy in the world, USA has clocked 2 quarters of de-growth and is technically in recession. As per a study, the UK, Eurozone Countries and even China, are all flirting with recession, registering low GDP growth rates. Russia is embroiled in a conflict that is likely to drag on for some time. The central banks are dealing with extremely high inflation rates.This is prompting them to increase Interest rates. Capital is finding its way back to safer haven, resulting in Currency depreciation. Stock markets are sliding, if not plunging and the general investor sentiment seems to be negative.
While India appears to be a bright spot in this otherwise gloomy global scenario, it cannot be immune to what is happening all over the world. India is also experiencing high inflation, capital outflow, dip in forex reserves, currency depreciation and a Yo-Yo-ing Stock market, although we are technically still not in the “bear market” phase.
India’s Growth Trajectory
By the end of this decade, India’s economy is anticipated to be the third largest. This is owing to its faster growth rate. India has been the fastest growing economy in 2021, and is likely to be amongst the fastest growing economies in 2022 and the years that follow. As per the IMF World Economic Outlook, India is the lone bright spot amongst major economies, projected to grow at a much faster rate of 6.8% for 2022, as against 4.4% of China, about 1% (and lower) of the USA and many European nations.
This is not to say that India will not have challenges. Our projected growth rate of 6.8% is surely lower than the 8.7% growth we clocked in 2021. According to a recent survey conducted by KPMG, 66% of Indian CEOs predict recession to hit India in the next 1 year, though a majority of them feel it would be short and mild.
India has long clubbed with other economies as “non-Japan Asia”, or just “emerging economy”. Inspite of this, India is creating a unique identity for itself. The changes are not just in the economic space. India has taken a vastly different stand than what many would not have expected on the Ukraine Russia standoff, not just delicately balancing relationships, but doing what is in the best interests of India. We have not hesitated to call out western hypocrisy without damaging diplomatic relations. Our approach to conflicts with Pakistan and China are far more definitive and serve as deterrence to any adventures from either side of the border.
Are Indian Equities Decoupled from US Markets?
Global dynamics will continue to influence India. Irrespective of the levels of self reliance achieved, India cannot isolate itself from the world, and it is not in the interest of India to isolate itself from the world. As things stand today, India is pulled along the Rest of the World due to persistent global developments. Yet, it stands apart as a paradox, one that refuses to toe the line, clearly determined to not just unshackle itself, but over the next decade, lead the world out of its difficult economic situation.
The issue is not whether India will face challenges. Every economy will have its share of challenges and India will surely face rough weather if it is a contender for being a world leader. The issue is whether India has the willingness and capability to overcome challenges.
India is Treading Its Own Path
If the recent Covid experience is taken as a pointer, it is a great example of India’s resilience. India not only managed the Covid crisis well for itself, but also helped many other countries. Without giving in to demands by MNC vaccine producers, India has managed to administer at least 1 dose to more than a billion people. The official death toll is about 530,000 as against the projection of heaps of dead bodies, particularly in the light of shortage of oxygen cylinders, hospital beds and even PPE kits to begin with. The average Indian found his/her way of dealing with the virus and has managed to get things done.
The subtle attempts to reduce the over dominance of the USD in our foreign trade by entering into Rupee denominated deals are a clear indication of the direction India would take in the years to come. This will surely take time and the strategy of the US to bulldoze its way through a powerful currency will soon get challenged at multiple levels. The decline in the prominence of the USD, though still some time away, will lead to change in global leadership.
Despite all paradoxes, India has surged ahead and is now a force to reckon with. India is in a phase where it is transitioning from “What happens in the world influences India” to “What happens in India influences the world”. There is no denying the fact that India will not only chart its own path, but influence the choices of other nations and the direction of the global market.
Indian Consumer Is Driving The Economy
This is largely attributable to the Indian Consumer who is thronging the malls like never before. Full page advertisements have replaced news in the daily papers. There are attractive discounts and gifts on offer. Big Fat Indian Weddings are passe, wedding halls are getting booked for Birthday celebrations. Tourism has picked up. Air travel is back to pre-pandemic levels. Rentals are picking up as the Corporates are doing the fine balancing act between work from home and work from office.
The Government is doing its bit. A 35% increase in budgeted Capex has resulted in an improved infrastructure. The impact of the is perceived by the common man. Travel time between cities by Road has reduced by more than 20% over the years. Remote villages are getting connected and electricity is technically available in all parts of India. India is now the world leader in digital payments, clocking more than USD 1 Billion worth transactions a day. Indians will soon be able to pay outside India through UPI.
Today, an economic crisis looms over the world. The geo-political situation might worsen, as Russia threatens to escalate the war and China talks of unification of Taiwan. Commodity prices are likely to shoot up. Inflation and by extension, interest rates will remain high. The Indian Rupee may slide further against the INR due to continued appreciation of the USD. This will cut into Corporate profits, trigger layoffs, reduce demand and pull down GDP. The macro scenario looks grim.
Yet, India has received more than 58 billion USD in FDI in FY22, a period during which we saw sustained FII outflow. The RBI is dynamically managing the changes in interest rates and also ensuring a soft landing for the Indian Rupee.
Aspirational Young India Will Drive The Economy
Today’s India is more aspirational. We are no longer satisfied with what we have. There is a burning desire to achieve more. The youth today is willing to do what it takes, to get what it wants. Higher risks are being taken. Consumer confidence is at a high, and business confidence and manufacturing PMI are holding ground. Companies have reported improved results, despite input cost pressures.
Earlier, Indian markets would be completely driven by the FII movement. The first thing a trader would do is to check for movement of the Nasdaq in night. As time passed, the key indicator became SGX Nifty. All early trades would be driven by what happened elsewhere, and not necessarily within India. This is no longer the case. Thus, the long term India growth is not only intact, it is strengthening.
The performance of Indian Stock markets has been much better compared to that of the US markets. Same goes with the India Nifty50 vs Emerging Market index, and also when compared to the World (ex US) indices. However, we must guard against using the Stock indices alone as a barometer of economic progress. We must remember that the single largest driver of markets is liquidity. Markets do not change once a quarter.
What does the Investment Advisor Say?
To conclude, markets change every second. If there is any factor that can be held accountable for a change in markets every second, it is liquidity. Given that liquidity is now at a premium, it is not being looked at favourably. This means, lot of bumps in the short run. The traders will have a field day – some will win and some will lose. We do not know who. In the case of Investors, we know that those who sit tight will win, and those who panic will lose!
The lesson and implication for the long term investor is to not lose patience amidst this turmoil. Enduring through the choppy waters would take the ship forward. The ‘India story’ may sound hackneyed a bit now, but then this is not wishful thinking nor wide-eyed optimism. We can ignore the smart cynics and the wry sarcasm who frown upon the ‘India story’, and look forward to a great Deepavali and brighter times ahead in the years to come.