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Despite a challenging global environment, India showed resilience in 2023. This momentum is expected to continue, the Reserve Bank of India has just revised its growth forecast for the country and now expects real GDP growth of 7% in the fiscal year 2023-24, compared to the previous forecast of 6.5%. Against this backdrop, James Thom, Senior Investment Director, Asian Equities at Abrdn, a UK-based asset manager, discusses the growth and investment prospects of India.
In a recent podcast, Thom highlights how the stable government of Prime Minister, Narendra Modi and his reform measures played a role in India’s economic growth. Thom elucidated, “..part of the reason that we’ve got such a sort of buoyant and positive corporate mood in India at the moment and a sort of positive outlook on growth is thanks to the reforms that Modi put in place early during his first term in office. And that’s now providing a kind of base for growth.”
Speaking about the Indian corporates, Thom finds them to be “fairly bullish” and enthusiastic, which is quite a contrast to the rest of the world. “Well, it’s a reflection of the growth and the opportunities that these companies and management teams are seeing in India at the moment,” explained Abrdn’s Asian Equities Senior Investment Director. “And we’re seeing that accelerating economic growth story come through quite strongly,” he added.
Thom added how the goods and services tax is helping to drive tax collections ahead of expectations, which is being used for infrastructure development. He further emphasised how India maintained its monetary and fiscal discipline through the pandemic when compared to much of the West. “And so, we haven’t now seen the high levels of inflation that we are seeing elsewhere in the world,” Thom said.
He also draws a comparison between China and India, wherein the world’s second-largest economy is grappling with slowing growth, a weak property sector, and infrastructure spending. On the other hand, India has a booming residential real estate market, accelerating growth (especially urban growth) and a healthy consumer sentiment.
In terms of geopolitics, Thom sees India as a “balancing force” between China and the US. “Whilst China and the US have been at loggerheads for some years now, the US, I think in a classic kind of balance of power game, is looking to India as a sort of balancing force against China. And so has been kind of cosying up to India.”
That said, Abrdn’s Investment Director feels that India as an option for nearshoring/friendshoring is still in the nascent stages. However, the nation was actively pursuing the chances of being a beneficiary for the ‘alternative to Chinese manufacturing’. “They’ve implemented something called the Production-Linked Incentive Scheme, and that’s achieved quite a bit of success. So, this is providing kind of tax breaks and subsidies and so on to attract multinationals to India to manufacture,” explained Thom.
Renewable energy, banking sector with good growth prospects
“India stock market is going to be transformed over the next decade away from being a kind of fairly traditional industrial and sort of banks led market to something much more dynamic and growth focused with many of these digital companies growing very rapidly,” predicted Thoms on the increasing IPO activities in India.
From an overall sector perspective, he is optimistic about banking, infrastructure, real estate, and consumer-led sectors. Thom is also optimistic about companies that cater to renewable energy and solar photovoltaic sectors.
However, in the podcast Thom also highlighted certain risks related to investing in India. Thom feels that if Modi doesn’t win the third term or loses majority support, the infrastructure spending could come to a standstill. “…India is a net importer of oil. And so, with oil elevated levels, that has to be a concern from a sort of macroeconomic stability standpoint for the current account deficit for the currency,” he cautioned.
