India-US and its Growth Potential?

Oxfam International estimates India minted 70 new millionaires each day between 2018 and 2022, putting spotlight on the nation as multinationals look to tap a growing consumer market. The survey also found that the country’s middle-class population of 432 million — earning between $6,000 and $36,000 annually — is the fastest-expanding category, and is predicted to reach 715 million by 2031.

Prime Minister Narendra Modi arrived in the US on his official state visit with India’s geopolitical clout higher than at any point since he took power in 2014. The trip was a high-profile affair, complete with a banquet at the White House and an address to the US Congress, making PM Modi the first Indian prime minister to speak in front of the legislature twice. Besides meeting US President Joe Biden, he met with private-sector leaders including Tesla Inc.’s Elon Musk, who said he’s planning to visit India next year.

As US celebrated its Independence Day on July 4th, India offers a diplomatic and military counterbalance to China’s power in the region, at a time when Americans are distancing itself from its biggest trade partner and the world’s manufacturing powerhouse. Both nations see Beijing as a threat, with Biden expanding Trump-era export curbs to China and Modi’s government banning hundreds of Chinese apps in the wake of a border clash that left 20 Indian soldiers dead in 2020.

Geopolitical winds are blowing in India’s favour. While India still has a lot of work to do before it can successfully integrate into global supply chains, a favourable geopolitical environment is a key reason for being bullish on India’s manufacturing potential.

India is boosted by the West’s desperate need for an alternative to China. Xi Jinping’s regime is widely seen as un-investable; PM Modi is far more palatable by comparison.

India’s economy is growing at 6+%, currency volatility has decreased, earnings are resilient and foreign investors are returning. That has helped Indian equities deliver the strongest returns in emerging Asia in the second quarter. Conditions are in place for the outperformance to extend to the whole year, attributing these to manufacturing and technology.

Dubbing India as the “fastest-growing economy” in the G-20, SocGen upgraded the nation from neutral to overweight for three reasons: 1) resilient earnings (trading at 21x their 12-month forward earnings — a more than 50% premium to Asia peers); 2) fewer volatile assets as domestic investors take on a growing share of equity turnover; 3) positive momentum flows from foreign investors.

Financial assets in India have outperformed their regional peers. Indian equities have attracted almost $10 billion in net foreign inflows since March, on track to be the most in any quarter since the end of 2020. They are also the best performers in Asia during the second quarter, with conditions in place for the outperformance to extend to the whole year, according to SocGen.

Like other emerging markets, India is currently benefiting from its central bank’s decision to start tightening monetary policy well before developed market central banks joined in the fight against inflation. The Reserve Bank of India is set to wind down the cycle soon and left its benchmark rate unchanged this month. In minutes of the monetary policy panel meeting released Thursday, RBI Governor Shaktikanta Das said the country’s macroeconomic fundamentals are strengthening and growth prospects are steadily improving.

India’s growth prospects are still among the brightest in the world, citing a workforce they predict will also overtake China. India stands to benefit from strong population growth and the ‘friend-shoring’ of manufacturing supply chains as the global economy fragments.

The US and India are working on ways to promote semiconductor manufacturing in India, according to officials. India as a consumer of technology is now being replaced by an India which is at the table, wanting to frame the standards along with like-minded nations for the future of technology,” said Rajeev Chandrasekhar, Indian Electronics, and IT minister.

Although India has had some early success with smartphone assembly, Apple exported more than $7 billion of its devices from the South Asian nation in the last fiscal year.[i]

[i] Bloomberg