India, a growing giant
26.03.24
India is the seventh largest country on the planet and has the largest population, with more than 1.4 billion people at the end of 2023. The importance of this data is the direct relationship they have with the economic and social evolution experienced in the country in the 21st century, and which has made it the fifth largest economic power in the world. It should also be added that according to current estimates from major international organizations (IMF or the World Bank), it will become the third largest economic power in the world before 2030, the year in which it is estimated to exceed 1.5 billion people.
Estimates of India’s GDP indicate that it will grow by more than 7% in the coming years, levels already seen in 2023. This strength is the result of the reforms carried out by the current government that in May is running for its third consecutive term. Prime Minister Narendra Modi is currently the highest-rated head of government and the results of the 2023 regional elections predict that his party will emerge victorious in the presidential elections, which would give way to five more years of reforms and political and social stability.
After the victory achieved 10 years ago, Modi initiated a series of reforms that have given India a very favorable regulatory framework for all types of investments. He enacted laws in sectors as diverse as finance, real estate, energy and the labor market, among others, leaving a structure of totally independent powers especially between the legislative, the economic (Central Bank) and the government, which has allowed to attract foreign investment, becoming the real alternative to China.
India has managed to stay out of the main geopolitical tensions, managing to maintain bilateral relations with the main world powers without closing any doors. In addition, it has its own resources that are more than sufficient so that its growth is not affected by dependence on foreign countries. The only exception is oil, a raw material of which it is totally dependent on third parties, but to minimize this situation, initiatives have been taken to accelerate the expansion of renewable energies while analyzing other alternatives, which will gradually reduce that dependency. To relativize this dependence, today the volume of crude imports is lower than that of IT services exports.
There are numerous competitive advantages that India has over other emerging countries in attracting investors, including: 1) the population, with an average age of 28 years, is growing and the average number of children per woman is 2.05, well above developed countries. 2) The GDP per capita is only 2,250 USD, which makes it very competitive in terms of wages. 3) Unlike other emerging countries, the local industry is highly diversified, with the financial, consumer discretionary, technology, healthcare, materials and industrial sectors standing out. 4) Economic growth is led by domestic consumption, which means less dependence on foreign countries. 5) The presence of public capital in local companies is one of the lowest in the world, with a participation close to 10%. 6) In the last 35 years, India has not suffered any crisis, neither political nor currency, unlike what has happened to most emerging countries.
From a business point of view, India has a wide variety of highly diverse and profitable companies, which will allow it to face the next economic cycle with a very low leverage level, which guarantees that it can afford the necessary investments to ensure solid growth. In addition, it has a very strong and healthy financial system that, together with the government’s commitment to the development of the country’s large infrastructures, will allow that growth to accelerate even further. Major companies such as Vinci or Ferrovial have already made significant investments in India.
From the investor’s point of view, the Indian stock market is currently the fourth largest with a market capitalization of 4.3 trillion USD, a market that already has a growing local investor base of more than 80 million people, which ensures a recurring flow in its stock market, which is reflected in the good performance of its two main stock indices, the Sensex and the Nifty.
In conclusion, we can say that India is currently the most important emerging power, which has an unbeatable political, economic and social peace framework (strong local retail demand, moderate inflation, stable interest rates and considerable foreign exchange reserves) to achieve unparalleled growth in the coming years/decades. The cons that you will face are small, but not negligible. Geopolitically speaking, India is surrounded by China and Pakistan with which it has historically had disputes and which could lead to international conflicts and, on the other hand, a social structure of castes and considerable gender differences, which in the case of not properly distributing the benefit generated by that economic growth among all of society, could lead to social tension that could disrupt this very enviable panorama from many points of view.
Spotlight on the markets:
A positive week for the equity markets in which the Ibex 35 rose again with an increase of + 3.26%, above the + 2.98% of the Nasdaq 100, the + 2.29% of the S&P 500 or the + 0.90% of the Euro Stoxx 50. Money continues to flow into risky assets, which allowed the S&P to mark its 18th all-time high in 2024. The VIX volatility indicator remains at very low levels, which may be increasing complacency in markets immersed in a positive spiral for five months now.
In the fixed income markets, we again saw a movement parallel to that of equities, that is, money entering bonds, which caused an adjustment in bond yields globally. The return on the 10-year German bond fell 12 basis points in the week to stand at + 2.24%, the Spanish one fell 9 basis points to + 3.15% and the US Treasury remained at + 4.22% after falling 8 basis points in the last five days.
As for raw materials, it could be said that we had a week of transition if we only focus on the week-on-week evolution, since Brent only rose + 0.10% and gold did so by + 0.40%. But they were not quiet sessions: Brent hit its annual high of USD 87.70 per barrel to close at USD 84.43 and gold again hit an all-time high of USD 2,222.39 per ounce, but closed at USD 2,164. The falls are partly justified by the strengthening of the US dollar, which has reached very close to the lows of the year at 1.08.
The main explanation for this behavior is macroeconomic data. The reference last week in Europe was the CPI data for the euro zone, which was + 2.6% as estimated by experts. Europe is getting closer and closer to that target of + 2% inflation, but it is due to the weakness of the European economy which is barely growing. The start of the accommodative movement by the ECB is getting closer and closer. In the United States, there were several reference data points, used home sales experienced a strong rebound, 4.32 million compared to the estimated 4 million, PMIs were also known, more or less in line with expectations, while manufacturing was slightly above estimates, services fell just below. But what justified all the events was the Fed meeting that decided to keep interest rates unchanged, and which reaffirmed its forecast that there will be three 25 basis point cuts in the reference interest rate in 2024, despite slightly raising its growth and inflation forecasts for the coming years.
This week we should pay attention to consumer confidence in the US, which we will know this afternoon. A data point clearly above expectations could cast doubt on whether inflation will maintain the expected correction path in the short term. The US GDP for the fourth quarter of 2023 will also be revised. Here, likewise, a figure greater than + 3.2% could reactivate alarms regarding the evolution of inflation. In addition, throughout the week the heads of the ECB and the Fed will speak, who could continue to give clues about the when and how much of their next monetary policy decisions.
Quote of the week
And we close with the following quote by Stephen Hawking, British theoretical physicist and cosmologist, «We are all different. There is nothing like a standard or typical human being. But we share the same human spirit. The important thing is that we have the capacity to create.»
Summary of the behavior of the main financial assets (March 25, 2024)
This report does not provide personalized financial advice. It has been prepared independently of the particular financial circumstances and objectives of the people who receive it.
This document has been prepared by Portocolom Agencia de Valores S.A. for the purpose of providing general information as of the date of issuance of the report and is subject to change without notice. Portocolom Agencia de Valores S.A. does not assume any obligation to communicate said changes or to update the content of this document. Neither this document nor its content constitutes an offer, invitation or solicitation to purchase or subscribe to securities or other instruments or to make or cancel investments, nor can it serve as the basis for any contract, commitment or decision of any kind.
The information included in this report has been obtained from public sources and considered reliable, and although reasonable care has been taken to ensure that the information included in this document is not inaccurate or misleading at the time of its publication, we do not represent that it is accurate and complete and should not be relied upon as such. Portocolom Agencia de Valores S.A. assumes no responsibility for any loss, direct or indirect, that may result from the use of the information provided in this report. Past performance of variables may not be a good indicator of their future performance.