Investors’ attention should be turning to India, which has overtaken China as the world’s most populous country. The country’s growth potential is in the range of 5-5.5%, which is one of the highest among emerging markets, not comparing it with developed markets.
This year alone, India is projected to contribute up to 15% of global growth, second only to China and more than Europe and the US. India has the necessary components to become a key driver of global growth, but it must overcome several obstacles before it can unlock its full potential.
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Companies’ capital expenditure has stagnated over the past decade, and we believe the need for new investments will drive growth in the next 10 years. There’s scope for this, given corporates have stronger balance sheets and corporate debt to GDP fell by 19% in the 10 years to mid-2022.
The banks have strong capital adequacy ratios of around 16%, which makes them better able to withstand risk, absorb losses and consequently to lend. Indian banks also cleaned their balance sheets, with net non-performing assets accounting for 1.7% of total advances in March 2022 from a peak of 5.6% five years ago.
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Additional support could come from the government, which is keen to stimulate investment activity in newer sectors. Initiatives like the Production-Linked Incentives scheme can help boost manufacturing by wresting supply chains away from China, propelling exports and attracting growing industries such as semiconductors, electric vehicles and renewables.
India maintains relations with various powers, making it a potentially influential broker between the east and west. In some industries, like solar modules, entire value chains could be built domestically.
To read the rest of this article visit the October edition of Portfolio Adviser Magazine
