At Kotak, we truly believe that India is an oasis in the desert and this conviction is backed by consistently positive headlines from the country. Here’s our bit on the country’s outlook, how the economy has withstood testing times and the potential risks too.

Sometime back, we saw Japan’s economy slip into a recessionary zone after shrinking for the second consecutive quarter. Towards the end of last year, we also saw the United Kingdom slip into a recession. On the other hand, India continues to shine as a ‘bright spot’ on the global landscape despite continued geopolitical conflicts and other macroeconomic headwinds. The International Monetary Fund (IMF), in its latest ‘World Economic Outlook’ update, said that the economic growth in India was projected to remain strong at 6.5 percent during 2024 and 2025, with an upgrade from October 2023 by 0.2 percentage point for both years, on resilient domestic demand.

“The economic success of India is grounded in the pursuit of reforms over the last years”, Managing Director of IMF, Kristalina Georgieva, said earlier this month, adding that it looks all set to achieve the goal of becoming a developed nation by 2047 by staying the course. Not only has India managed to retain its title as the fastest growing nation in the world, but also pipped Hong Kong recently to become the fourth largest stock market globally. India’s stock market capitalisation surpassed $4 trillion for the first time in December 2023.

So why does India's growth story look secure despite global headwinds and uncertainties? What’s leading to the boom in the stock market here vis-à-vis the volatile, unpredictable moves in other global equity markets?

On the economic front, while Georgieva attributes it to the pursuit of reforms over the last few years, the government's digital push, thrust on innovation and R&D efforts, there are several other factors at play. High-frequency macro indicators in India are showing improvement. The Index of Industrial Production showed a faster-than-expected growth at 3.8% in December 2023, with robust improvement in the consumer goods, manufacturing output and infrastructure segments. Monthly GST collection surged to  ₹1.72 lakh crore ($25 billion) in January 2024, the second highest monthly mop-up ever. Data on manufacturing and services indexes seems to be in a comfortable zone. Overall, India looks on track to register 6 percent plus GDP growth this fiscal year even amid severe headwinds and uncertainty.

The signs look equally optimistic even on the trade front. Commerce and Industry Minister, Piyush Goyal, recently expressed at a media event that global economic uncertainties have impacted foreign direct investment. But despite the challenges, he reiterated that India will continue to be the bright spot of the world for overseas players. He said that because of the high interest rates, there was a reverse flow of capital towards developed economies, "but I do believe that India is an oasis of stability”.

A large part of India’s performance can also be linked to domestic demand, state investment and buoyant consumer sentiment. From credit growth, electricity consumption, mobility data to sustained economic growth, easing inflation, growth in manufacturing despite high interest rates, and a lift in construction activity  – all key indicators seem to paint a rosy picture of the Indian economy.

Meanwhile, equity markets have also been flourishing on the back of strong domestic macroeconomic fundamentals coupled with a rapidly growing investor base, sustained inflows from foreign institutional investors, and robust corporate earnings.

But can it be all rosy without any thorns? A key challenge is that the aforementioned growth in consumption has not been broad-based. While the urban areas are witnessing strong demand, the rural consumption remains relatively muted. Private capex recovery also remains a bit of a pain point because so far, the lion’s share of the investment has been coming from the government. And then of course, the geopolitical woes – the Israel-Gaza conflict, lingering issues on the Russia-Ukraine front and the Red Sea crisis, hitting the oil prices hard. And with inflation concerns still looming large, ‘higher for longer’ seems to be the mantra for interest rate cycle for major central banks world over. However, the way things are back home in India, sanguine industrial and manufacturing figures, positive tax inflows and strong growth in India Inc’s performance seem to have outweighed the headwinds, reiterating India's strengths as a 'can’t-ignore' destination amid a myriad of uncertainties.

 

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This article has been prepared by Kotak Mahindra Asset Management (Singapore) Pte. Ltd. (“KMAMS”).