India’s economy: The world’s major financial powers see India as an island of hope amidst a sea of ​​despair

Foreign banks and rating agencies are increasingly optimistic about India’s growth potential and as a key investment destination, while the global economy continues to brood over the deep pains caused by the biggest economies, whether in the form of frontloading from Federal Reserve rate hikes or worsening China. construction bubble.

Moody’s confirmed a stable outlook on India yesterday, saying its credit profile reflects its key strengths, including its large, diversified economy with high growth potential, a relatively strong external position and a stable domestic debt funding base. public.

In fact, the managing director of McKinsey & Co said that this was not India’s decade, but India’s century. A large workforce, multinational corporations reinventing global supply chains and a country leapfrogging digitally – to achieve something special not just for the Indian economy but potentially for the world are the key elements in place to stimulate Asia’s third largest economy.

“India is the future talent factory for the world. By 2047, India would have 20% of the global workforce. And with the revamping of supply chains, it has huge potential for India in all aspects of manufacturing. The third is digitalization. India has leapfrogged in digital scale. All these raw materials are needed to do something special not only for the Indian economy, but potentially for the world,” McKinsey’s Bob Sternfels told ET.

India’s Finance Minister today stressed that emerging economies like India are showing their full potential to lead the global economy over the next 50 to 60 years. “It’s (emerging economies) that are robust and are coming out of the economy very comprehensively. They are the ones who have solutions to many problems, whether based on food security or commodity prices. These are the markets that will give you both supply and supply and demand answers in the next 25 to 40 years,” she added.

India’s Rebound Story

India’s rebound story is also becoming all too mainstream for markets, the economy and its financial instruments.

On Aug. 29, Sensex jumped 1,564 points to post its second-best one-day gain of the year, while the local currency also recorded its biggest one-day gain in a year against the wobbly dollar. The Nifty 50 rose 2.9% between August 29 and yesterday, outperforming the US and Chinese markets. In contrast, the Dow Jones fell 2% and the Hang Seng 3.3% over the same period.

Foreign investors return to India

Moreover, foreign investors, who had previously shunned India as an investment destination, are returning to Asia’s third-largest economy and pouring in around $7.6 billion in a month. August marked the first month this year that foreign investors became net buyers of Indian government debt. In August, FIIs bought shares worth Rs 51,000 crore, a sharp rebound from Rs 5,000 crore of net investment by REITs in July, when they became net buyers for the first time after nine months.

Between October last year and June 2022, foreign investors had sold a whopping Rs. 2.46 lakh crore of Indian shares.

When the FII selloff was at its peak and many global markets were caught in a bearish grip, Nifty’s decline was relatively less due to the strong participation of domestic investors. With FII support, Nifty is now 950 points away from racing past all-time highs.

India is now reaping the rewards of rising corporate profits, despite rising crude oil prices and fears of a global recession.

“For India, the FPI movement has been similar to that of other big emerging markets like China, Korea, Taiwan, etc. A stabilized inflation scenario compared to other countries and sustainable growth in Indian corporate earnings also helped a lot,” Jisang Yoo, CEO of Mirae Asset Capital Markets, had told ETMarkets.

The central bank has also helped attract flows by taking a series of measures in recent months.

New Delhi’s Growing Confidence, Mint Street

Another stimulus story is also rooted in government and central bank belief in the path of inflation and economic growth.

Sitharaman categorically refused to associate terms like stagflation and recession with the current state of the Indian economy. “India’s general debt is also in a good position compared to many other countries,” she said.

Noel Quinn, group managing director at HSBC, the local global bank, told ET that inflationary pressures in India are not as great as those prevailing elsewhere in the world. “I think India in particular has a very solid and bright future ahead of it. It’s a pretty stable economy, with manageable inflation, very strong growth prospects and a stable political environment in India. And I think that this fosters a very strong growth environment,” he said.

Quinn said India’s economy was gradually unlocking due to digitalization and a simpler tax structure and was poised to reap the benefits of the ongoing ‘re-globalization’ as businesses change supply lines to deal with new geopolitical realities.

Mint Street, for its part, has repeatedly said in recent weeks that inflation in India has peaked. Reserve Bank of India Governor Shaktikanta Das had called the country’s economy an island of stability despite two Black Swan events and multiple shocks.

Black Swan events refer to unpredictable incidents that lead to negative consequences.

Although Das did not list the events of Black Swan, the global economy lately has been ravaged by the coronavirus-induced crisis, which has also not spared India and India’s third-largest economy. Asia suffered one of its worst contractions in fiscal year 2021. Shortly after, Russia’s invasion of Ukraine destabilized the global food and oil supply chain, triggering readings of high inflation over several years. India’s retail sales inflation hit a roughly eight-year high in April.

But as mentioned, the revival story is intact and it comes at a time when investors around the world are nervous.

India will profit from the miseries of China

China narrowly avoided posting a contraction in the second quarter as pandemic-induced lockdowns and a slump in the construction sector undermined consumer and business confidence.

The crisis in the real estate sector has inflicted serious injuries on China’s biggest lenders, as bad real estate loans surged in the first six months of the year.

Home sales in China have fallen for 11 consecutive months, the longest such streak since the world’s second-largest economy created a market for private property in the late 1990s.

“The outlook for China’s construction industry on long-term structural factors such as aging demographics and rebalancing of the economy will eventually suppress a substantial portion of demand,” the State Bank of India said. in a research report. However, while China’s history may now face clear headwinds, India stands to benefit from these harsh longer-term realities, he added.

“India will likely be the beneficiary as China slows in terms of new investment intentions.”


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