Market Outlook: India

India is one of the world’s fastest-growing major economies, with its lead over China widening. The Organisation for Economic Cooperation and Development (OECD) is expecting 7.5% YoY GDP growth for India by 2020 versus a forecast of 7.25% YoY in 2019. Meanwhile, China’s economic growth is forecast at c. 6.0% for 2020, as the escalating trade war with the US takes its toll.

This is good news for India as a future economic powerhouse, with factors such as accommodative monetary policy, aided by higher domestic demand, fiscal stimulus (including new income support measures for rural farmers and some recent structural reforms), all contributing to the impressive 2019 and 2020 GDP forecasts. The appreciation of the Indian rupee should also reduce inflationary pressures and the country’s current account deficit.

While India faced a fair share of economic challenges during Prime Minister Narendra Modi’s first term in office, including bad debt issues at public sector banks and a chaotic time during the demonetisation episode (when cash shortages led to street protests), overall, Modi’s Bharatiya Janata Party (BJP) has provided a steady hand at the helm of government. It has delivered five consecutive years of economic stability, with strong growth and moderate inflation.

The recent strong win at the polls by Modi and the BJP should see a continuation of sound macroeconomic policy over the next five years, with a key economic challenge for Modi being an extension of his economic reforms.

IHS Markit forecasts India will become the world’s fifth largest economy in 2019, reaching a total GDP size of $3trn-plus. It will overtake the UK and by 2025, India’s GDP is predicted to surpass that of Japan, making it the second largest economy in the Asia Pacific region.

Under Modi, foreign direct investment (FDI) inflows surged, buoying India’s external account position and helping create a more dynamic industrial economy. India is also beating China on competitiveness. Over the past four years, India gained 20 points in the World Economic Forum’s Global Competitiveness rankings, while China's position was basically unchanged.

So, it would appear that India’s economy is on the right track and the country is becoming a more attractive investment destination. It was voted second most attractive emerging market for equities in 2019 by Bloomberg, and it remains a preferred destination for FDI in 2019, according to a Reserve Bank of India report.

Written exclusively for Moore Stephens by Anchor Capital