The Indian market will continue to show sustainable and all-inclusive long-term growth. The next big gold mine for investments, the growth in Indian equities will be faster as we can expect a rush of FIIs. A stronger position of the mutual funds shows an increased pooling of domestic savings as a reflection of inclusive growth. The anticipated cut in the US Fed rate by the end of the year and China’s market collapse would compel FIIs to look at India as the world’s most promising market. Bharat’s ongoing economic growth story and the prospects of reelecting the incumbent in the next Lok Sabha election reassure the investors of an opportunity in the overall Indian market.
China’s declining economy
Fifty-two million construction workers in China will find it difficult to celebrate the Spring Festival, buy clothes for children and give red envelopes to their children this year. The villagers working in the construction sites of large cities return home with a pained heart. The construction industry collapsed, triggering a socio-economic collapse after workers suffered pay loss. China is traditionally known for its worse consumption rates and disproportionately large investment rates. The pay loss and pending unpaid wages can further intensify the decline in the consumption rate when China is already reeling under deflation. It couldn’t set its house right in a big way, even after lifting the pandemic-time restrictions. Analysts do not foresee a major change in the foreseeable future.
China habitually punishes the head of its security regulator, the China Securities Regulatory Commission (CSRC) for the securities market crash. Two days after China’s stock indices hit a five-year low, the government sacked Yi Huiman, Chairman of CSRC on 7th February 2024. Yi failed to arrest the persistent fall that wiped out $ 1 trillion values in stocks. The crash in property prices, dipping consumption rates, piling-up unpaid wages, etc made China a chaotic market for both domestic and foreign investors. Nothing that Xi did could control the tide. Recently, Goldman Sachs tried to find how bearish its clients felt about the prospects in China. The finding was miserable as half of the clients who responded gave zero marks, and the rest only gave three out of 10.
China did not recover from the pandemic shock. It found a new bottom that made investors increasingly unhappy. Foreign investors are in a panic as they fear a government crackdown on them and detention of their employees if they withdraw abruptly. Still, some find no reason to stay but to withdraw from the market gradually, if not abruptly. The $280 billion equivalent in the market stabilisation fund that China holds to rescue the market from the bearish phase may not be sufficient to push the market and restore investors’ confidence.
On the other side, the US economy is temporarily booming with 3.3 per cent growth in the last quarter of the calendar 2023. S&P500 soared by 15 per cent in three months. The unspent savings of Americans during the lockdown period and the pandemic relief cash paid by the government during the pandemic time that came into the market fired the boom. Economic data supported investors’ confidence. But market analysts now expect the US Fed to drastically cut the rate below four per cent from the current level of 5.5 per cent by the end of the year. That may help demands to rise after the savings run out. However, the rate cut will force investors to find another potential market where they can find higher yields.
Why Bharat offers an effective alternative to China
Bharat gives a different picture of the global economy. The growing consumption, booming investment in the infrastructure segment, focus on enhancing competitiveness, record profits by the corporate sector with indication of more investments, etc show Bharat is passing through a booming phase with scope for both foreign direct investment and portfolio investments. Even the most conservative estimate predicts India’s GDP to grow by seven per cent in the current financial year. It may grow even faster in the coming years because of the massive investment coverage, ease of doing business, favourable ecosystem for MSME and Start-up growth, tax reforms, focus on the agriculture sector and rural savings to ensure more money in the hands of the middle and lower middle class. More money in the hands of the middle class is a trigger for rapid economic growth.
In 2014, India had just over 350 start ups. ‘StartUp India, Stand Up India’ call by Prime Minister in 2016, led to the formation of 1.30 lakh start ups. Today, India has 110 StartUps with over a billion-dollar enterprise valuation. That shows how well the government has created an ecosystem for start ups to grow. The ‘StandUp India’ mission with the government’s focus on innovation is changing India into a self-reliant modern economy and low-cost production hub for the world market. The rise in stock indices reflected the investors’ confidence, though huge scope for further inflows remains.
Last year, the stock indices grew 18 to 19 per cent, triggered largely by the exposure of mutual funds. The growth in the investable assets of Mutual Funds reflected higher household savings. At the same time, there has been a consumption growth in the rural areas to indicate inclusive participation in economic growth. It shows the robust nature of the growth.
The significant increase in the holding of domestic institutional investors (DII) in equities shows the significant contribution of DIIs in the boom. The role of foreign institutional investors (FIIs) at present hasn’t been on par with the current growth story of India and the long-term growth potential of the Indian economy. That may be due to the temporary boom in the US market and the high Fed rate. But these two factors are easing now while the Indian economy is set for stronger growth.
The crisis in China might have burned the fingers of foreign investors, who are waiting for a safe exit. This also gives India greater hope and brings the dream of Vikasit Bharat closer.