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India has made the best use of the global Fiscal Extravaganza – DSP Asset Managers

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3 months ago

September 10, 2024

MUMBAI, India, Sept. 10, 2024 /PRNewswire/ — India has emerged as a standout performer among emerging markets, achieving over 8% growth, according to DSP Asset Managers in their August 2024 report, DSP7Sees which presents investors insight from historical and contemporary trends shaping Indian and global markets. India’s growth is attributed to an expanding budget deficit that has translated into economic expansion, positioning India as one of the fastest-growing economies globally.

The report notes that this fiscal strategy has been facilitated by similar high deficits among trade partners, particularly the US, which have mitigated potential balance of payments shocks through currency adjustments. The effective policy implementation by the central government and the Reserve Bank of India has further solidified this growth trajectory.

However, DSP7Sees cautions that strong economic growth does not always correlate with high equity returns. For instance, Brazil, despite moderate growth, has provided the highest real returns over the past 30 years, while China, despite its rapid GDP growth, has seen negative real returns. India stands out as an exception, where real returns have lagged real GDP growth.

A significant driver of India’s economic performance is household consumption, which constitutes 60% of its GDP. Over the past three decades, household consumption has skyrocketed from $200 billion to $2 trillion, reflecting a compound annual growth rate of 7.2%. Sustaining this consumption is crucial for boosting domestic investment and attracting foreign capital.

Since the COVID-19 pandemic, the Indian stock market has experienced one of its most remarkable bull runs, with corporate earnings tripling compared to its emerging market counterparts. This has led to India’s weight in the Emerging Market Index doubling, making it a strong candidate to surpass China as the leading market in the index, drawing increased attention from Foreign Institutional Investors (FIIs).

The DSP7Sees report also highlights the robust growth of India’s business services exports, which reached $29 billion in FY24, with a five-year CAGR of 86%. This growth, particularly in business consulting services, has significantly bolstered India’s balance of payments. Additionally, inflows into India’s debt market, spurred by its inclusion in global bond indices, provide a buffer against global economic shocks, further enhancing the country’s economic stability.