This report is from this week’s CNBC’s “Inside India” newsletter which brings you timely, insightful news and market commentary on the emerging powerhouse and the big businesses behind its meteoric rise. Like what you see? You can subscribe here.
The big story
The big banks of Wall Street have been quick to tweak what they expect from Indian growth this year.
Bank of America, Goldman Sachs and Deutsche Bank have all entertained the idea that India’s economic expansion might be lower than what was previously expected. The country’s GDP figure slowed to a 15-month low of 6.7% year-on-year in the second calendar quarter.
Yet, India’s central bank appeared to dismiss the negativity earlier this month and reiterated its bullish view of India’s growth rate, still expecting the economy to grow by 7.2%.
When asked by CNBC’s Tanvir Gill whether there were any downside risks to this prediction, the governor of the Reserve Bank of India responded with an emphatic “no.” “Not at all.”
“We are quite confident about the 7.2% growth which we have projected in our current year’s assessment,” Shaktikanta Das said in an exclusive interview for CNBC.
“The underlying momentum is very strong and is not driven by some seasonal factors or one off factors. The growth momentum in India is very strong and it is primarily attributable to structural factors.”
Das pointed to data showing that consumer spending, which makes up about 60% of GDP, rose to 7.4% in the second calendar quarter, compared to 4% in the previous quarter. Similarly, construction continued to expand at 10.5% for the same period. The agriculture sector, which grew by 2.2%, was held back by a delayed monsoon but has since recovered.
The “only component” that slowed down, according to the governor, was government expenditure amid the election season. “Going forward, I would expect the budgeted amounts will be spent by the central and the state governments, and then they will be able to catch up,” he added.
Not only did Das stick to his guns on India’s near-term growth prospect, he was also bullish about the medium-term trajectory, expecting GDP to expand by more than 7.5% annually.
“It can be between 7.5% to 8%, I’d like to say,” Das added. “But on a conservative basis: seven and a half.”
However, when prompted on whether India’s growth rate could compete with what China has already achieved for over two decades, the governor was less buoyant.
The growth rate is politically important for Prime Minister Narendra Modi as he’s set out his vision to make India a developed economy by 2047 – a mere 23 years away and when India will log a whole century as an independent nation.
Meanwhile, China, now an upper-middle-income country, has grown by more than 10% annually for more than 22 years since the 1960s, according to CNBC’s count of World Bank data. India has never managed to achieve that feat.
“I think a 7.5% to 8% growth will not pose sustainability concerns. I think it can be sustainable. But if you are looking at 10-plus growth, before I venture into that, I have to really do my homework much more,” Governor Das said.
One key element behind the central bank’s bullish near-term view has been investors and businesses pouring money into India to either ride the growth story or diversify away from China.
That may be about change as China steps up measures to once again compete for investments headed for emerging markets. This week, China’s central bank, President Xi Jinping and other top leaders announced plans to boost the country’s economy and attract investment.
Just hours after the announcements, billionaire hedge fund manager David Tepper of Appaloosa Management told CNBC that he’d taken a limit-less bet on China without any hedges, buying just about “everything.”
Similarly, investment bank Barclays’ strategists have turned bullish on China in the near term.
“Renewed stimulus hope + a global laggards rally + marginal sentiment improvement amid low positioning is setting China stocks up for potentially the second major breakout for the year,” said strategist Kaanhari Singh in a note to clients.
“We would favor China shares over Indian equities into October.”
If India intends to grow as fast as China did, it may have to get a move on.
Need to know
India rules out joining world’s largest trade deal. “India is not going to join the RCEP because neither did it reflect the guiding principles on which ASEAN was started, nor is it in the nation’s interest to do a free trade agreement with China,” India’s Minister of Commerce and Industry Piyush Goyal told CNBC’s Tanvir Gill in an interview this week. The Regional Comprehensive Economic Partnership, or RCEP, was signed in 2020 by 15 Asia-Pacific countries that comprise 30% of global GDP. Watch the full interview with Goyal here.
Indian startup Physics Wallah hits a $2.8 billion valuation. Venture capital firms, led by Hornbill Capital and involving Lightspeed Venture Partners, GSV and WestBridge, poured $210 million into the education technology startup on Friday. That puts its valuation at $2.8 billion, far outstripping its last valuation of $1.1 billion. Physics Wallah offers free and paid-for courses — that on average cost less than $50 — for examinations in India.
Help in becoming a semiconductor powerhouse. Indian Prime Minister Narendra Modi wants the country’s electronics sector to grow from $155 billion today to $500 billion by 2030 — and the semiconductor industry will be a major factor in that. Industry experts are divided on whether that goal is realistic. But they are unanimous in saying India needs external help to kickstart this venture.
New realities for Indian banks. Former State Bank of India chief Arundhati Bhattacharya told CNBC-TV18 India’s era of deposit-led banking is over. With rising affluence in the country, a younger demographic of Indian investors are deploying their cash to low-risk assets rather than saving their money in banks. “Our treasuries really need to tone up to understand how they should balance assets and liabilities,” Bhattacharya said.
Dimon says India poised to take advantage of U.S.-China tension. JPMorgan Chase CEO Jamie Dimon cautioned that any “China +1” transition will take years as firms navigate the complexities of relocating operations. “It has just started, it would take years — you’re talking about 5, 10, 15 years. So even if it’s going to take place, it’s going to take a long time,” he told CNBC-TV18.
Avoid making mistakes when investing in India [subscribers content]. Amit Dixit, Blackstone Private Equity’s head of Asia, warns investors that focusing on India’s booming economy and stock market might blind them to potential pitfalls. “You have to own certain micros,” Dixit said.
What happened in the markets?
The Indian stock market is on a tear. The Nifty 50 is now firmly above 26,000 points to hit yet another record high. The index is up 1.6% for the week but up 20.64% so far this year.
The benchmark 10-year Indian government bond yield ticked lower this week to 6.71%, from 6.75% this time last week.
On CNBC TV week, Sajjid Chinoy, chief India economist at JPMorgan, told CNBC India’s “current account deficit has been very behaved and very benign.” The bank expects India’s deficit this year to be around 1.2% of GDP, which is very sustainable. Furthermore, India’s foreign exchange reserves has allowed it to have a degree of monetary policy independence.
Raamdeo Agrawal, the chairman and co-founder of Motilal Oswal Financial Services, weighed in on the country’s investment landscape. He said India’s bull run is in “full swing” but will become “much bigger,” predicting the Nifty 50 to reach 50,000 points by 2030.
What’s happening next week?
Manba Finance, a non-banking finance company that issues loans, is listing on Monday. Joining the Indian stock market on Thursday is KRN Heat Exchanger and Refrigeration, a manufacturer of heating and refrigeration components.
September 27: U.S. personal consumptions expenditure index reading
September 30: Manba Finance IPO
October 3: KRN Heat Exchanger and Refrigeration IPO
October 4: U.S. nonfarm payrolls for September, India Composite PMI