India Outlook 1H 2024

At MacroVisor, our outlook on India's economic landscape remains optimistic, particularly with regard to the long-term growth prospects.

As we delve into the first half-year update of 2024, our long-term bullish view remains intact due to the resilience and expansion observed across various sectors.

While acknowledging the inevitable market corrections, we see these as strategic opportunities to add to investment positions.

This perspective is rooted in an analysis of the underlying strengths and potential of the Indian market, which continues to show promising signs of robust growth and innovation.

What We Cover

• Economic Growth and Macro Indicators

• Inflation

• Reserve Bank of India & Policies

• Current Government Elections and Government Policy

  • Infrastructure Spending (Source: Reuters)

• India’s Digitization Efforts

• Stock Market

• Select Picks from Mark Mobius

Economic Growth and Macro Indicators

India's economic growth has shown signs of resilience and expansion in early 2024, buoyed by robust public capital expenditure and investments.

The HSBC India Services PMI escalated to 61.7 in April 2024 from 61.2 the previous month, marking the 33rd consecutive month of growth in service sector activity, indicating a notable increase in new orders. Concurrently, the HSBC India Manufacturing PMI reached a peak of 59.1 in April 2024, the fastest growth in factory activity since February 2008, driven by solid gains in output and new orders.

These metrics suggest a surge in both service and manufacturing sectors, supported by strong domestic demand. Meanwhile, industrial output rose by 5.7% annually in February 2024, slightly below expectations but still representing the most significant increase since October 2023.

Inflation

India's inflation dynamics have been favorable, with annual retail inflation dropping to 4.85% in March 2024, the lowest since May 2023. This decline in inflation has been supported by decreasing commodity and food prices, with food inflation registering at 8.52%, slightly below the previous rates.

Core inflation has also eased, reaching an all-time low, reflecting the reduced cost pressures in the economy. Despite this, unpredictable weather patterns related to El Niño could pose risks to food prices going forward. As we discussed in our Q2 Outlook, Tractor Sales YoY as a measure of agriculture production has declined significantly in the past one year.

Reserve Bank of India & Policies

The Reserve Bank of India (RBI) has maintained a consistent policy stance, keeping the policy rate unchanged for over a year. With banking system liquidity managed through two-way operations, the RBI has kept overnight borrowing rates well-anchored.

The central bank is expected to initiate policy easing later in the year as inflation trends closer to its medium-term target of 4% and growth momentum potentially slow. However, any rate cuts are anticipated to be modest due to the lower starting point and the prospect of higher inflation rates. Furthermore, if the US Federal Reserve adopts a higher-for-longer stance, we’re likely to see RBI also maintain a hawkish stance.

Current Government Elections and Government Policy

Elections that started on 19 April have been a significant focus for the government, which has increased spending on infrastructure to bolster economic growth. The election process is set to continue until 01 June in seven phases to elect 543 members of the “Lok Sabha”. The votes will be counter and results declared on 04 June 2024.

This pre-election spending, alongside improvements in consumption demand, is expected to sustain strong domestic economic momentum throughout 2024. The government has also emphasized fiscal consolidation in its FY 2025 budget, targeting a fiscal deficit of 5.1% of GDP, down from a revised 5.8% in FY2024.

Infrastructure Spending (Source: Reuters)

Infrstructure spending, including spending on green investments and digitization continues to remain a key focus for the Government.

• Allocation for infrastructure for 2024/25 raised to 11.1 trillion rupees ($134 billion), up 11.1% y/y

• Federal govt to allocate 3.86 trillion rupees to states for spending on infrastructure in 2024/25

• A Corpus of 1 trillion rupees is to be set up with a 50-year interest-free loan for research in the sunrise sectors (solar, green)

• Federal govt to allocate 2.55 trillion rupees ($30.7 billion) for spending by railways in 2024/25

• 2024/25 budget allocations for the road transport ministry seen at 2.78 trillion rupees

• Viability gap funding to be provided for offshore wind power

• 10 million houses to get free electricity via rooftop solar program

• Govt to subsidise construction of 20 million affordable houses in rural areas

India’s Digitization Efforts

India's digitization efforts, spearheaded by several key government initiatives, aim to transform the country into a digitally empowered society and knowledge economy.

This is a key focus for PM Modi who is likely to win elections this time around as well. Policy support is driving investments in data centers and other important digitization efforts that are organized as several different initiatives.

• Digital India Campaign (2015): Aims to make government services electronically available to citizens, enhance connectivity, and improve digital literacy.

• Aadhaar Project (2009): Provides a unique ID to residents based on biometric and demographic data, facilitating access to various government services.

• Goods and Services Tax Network (GSTN): Supports GST implementation, simplifying tax regime and promoting a common national market.

• BharatNet: High-speed broadband connectivity project targeting all rural areas to enhance digital inclusion.

• Unified Payments Interface (UPI): Facilitates real-time inter-bank transactions via mobile platforms, promoting a cashless economy.

• Digital Locker: Secure platform for storing and sharing digital documents, accessible via Aadhaar authentication.

• Smart Cities Mission: Develop sustainable and citizen-friendly urban areas through digital integration and smart solutions.

• Make in India: Includes digital initiatives to boost domestic manufacturing in electronics and IT, aiming to attract investments and reduce imports.

Stock Market

Despite optimistic projections for the Indian economy, the stock market faces potential volatility, with expectations of pullbacks over the next five years. However, long-term prospects remain bullish, with forecasts suggesting the market could reach 100,000 points within five years. This optimism is underpinned by continued economic growth, resilient corporate earnings, and favorable monetary policy adjustments anticipated in the latter half of 2024.

Select Picks from Mark Mobius

Mark Mobius has been very bullish on India over the last several months (maybe more), having visited for over a month as well. Here are some of his views.

• HDFC and ICICI Bank: Highlighted for their strong positions in the financial sector.

• Tata Steel and Bharti Airtel: Noted for potential benefits from India's infrastructural and digital growth.

• Indian Railways: Expected to gain from infrastructural developments.

• E-commerce and tech-enabled sectors: Caution is advised due to excessive competition and lack of earnings visibility.

• Solar and Wind Energy: Seen as attractive opportunities, especially for firms using inexpensive panels for electricity production, though competition with Chinese manufacturers presents challenges.

India's economic landscape in 2024 presents a complex yet promising scenario, characterized by robust growth, manageable inflation, and strategic monetary and fiscal policies, all playing pivotal roles in shaping the market's trajectory and investment climate.