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India is the fastest growing major economy in the world in 2023, retaining this status with a growth rate of 7.6% in the period from July to September 2023, surpassing the country’s central bank’s projections. Moreover, India’s Nifty 50 and Sensex have hit all-time highs recently as the economy recovers from high inflation. Against this backdrop, market experts share their India outlook for 2024.
India Economy
“In 2024, we expect macro-economic resilience to continue in India amidst steady growth at 6.3% yoy. The year will likely be a tale of two halves: Pre-elections, government spending will likely be the growth driver. Post-elections, we expect investment growth to re-accelerate, especially from the private side,” says Goldman Sachs.
The investment bank predicts that ongoing supply shocks will probably result in maintaining headline inflation above the target at an average of 5.1% year-on-year in 2024. Anticipating food and oil supply shocks, along with a stable growth outlook, the bank foresees core inflation decreasing only to 4.5% year-on-year on average in 2024 from an estimated 5.1% in 2023.
As a part of its India outlook, Amundi Asset Management suggests that government endeavours to manage prices next year will exert pressure on the rural sector of the economy, leading to a reduction in income.
“India’s economic prospects remain bright and will remain supported by mainly domestic demand over external demand. Signs of deceleration will be more visible on the consumption side than for investments,” projects the asset manager.
Meanwhile, DBS Bank says India’s improving medium-term outlook will generate a lot more optimism over the next few quarters. “In 2024, we expect USD/INR to maintain its remarkable stability, with a downside bias. Our forecast aligns with predictions of the end of global interest rate hikes amid a soft landing in the world economy,” asserts DBS.
India Equity
The Indian stock market proved to be both resilient and vulnerable in 2023 as it experienced a bull rally this year followed by a correctional period in October. However, asset managers remain optimistic about the country’s stocks in their India outlook for 2024.
“The Indian equity market has shown resilience despite valuations which can sometimes be described as demanding…government-led investments are finally boosting business confidence and driving more private capex. We are fundamentally positive on India and see great growth opportunities ahead,” states Nordea Asset Management.
Morgan Stanley forecasts India to see superior growth in earnings per share compared with broader emerging markets.
However, India’s equity market is not without its share of challenges. “…most notably over the coming months, the country faces high valuations bias in the small and mid-cap segment of the equity market, especially given that the bulk of the MSCI India’s performance has been driven by the mid-cap index,” writes Priyasha Mohanty, Equity Product Specialist at PineBridge Investments.
On the other hand, VanEck reasons that higher multiples in India versus other EM countries are justified by quality companies and relatively lower risk versus other emerging markets economies.
“India is rapidly transforming into a powerhouse investment hub. Its booming digital sector, combined with a strong equity market, is drawing global attention…If you don’t have adequate exposure, you may consider a multi-year tactical overlay,” opines Chief Execuitive Officer Jan van Eck.
India Bonds
The inclusion of Indian government bonds in JPMorgan’s Government Bond Index-Emerging Markets (GBI-EM) index suite has generated enthusiasm within India’s fixed-income market.
“Inclusion in the indexes could facilitate about $24 bn in passive inflows between June 2024 and March 2025. Flows could be greater if other indexes also move to include Indian government securities,” says Fitch Ratings.
This is because experts believe that JPMorgan’s inclusion of Indian bonds is expected to attract a greater number of global investors. Along these lines, S&P Global suggests that an increased presence of foreign investors in India’s domestic government debt market would boost demand and significantly reduce the cost of issuing new government debt.
“Expanded foreign participation in India’s government bond market should free sizable resources to facilitate ambitious development plans…Market estimates suggest inclusion in major bond indexes could attract an initial inflow of $20 bn-$40 bn, increasing to $180 bn over the next decade,” it adds.
Separately, Axis Mutual Fund anticipates that the 10-year bond yields in the country will reach 6.75% between April and June 2024. “Investors should use the uptick in yields to increase duration and should stick to short to medium-term funds with tactical allocation to long/dynamic bond funds in this macro environment. One can expect yields to be lower by 25-40 bps in the next 6-12 months across the curve,” says Axis.
