India has been the fastest growing major economy achieving over 7% growth in recent years. Economic and institutional reforms, along with cheaper oil has helped propel the country in recent years. Unfortunately, as we continue to see increasing risks of a global downturn, concerns have been raised over India’s relentless expansion. Recent industrial sector and property slump along with growing concerns within the shadow banking sector have not helped temper fears.
The IMF Chief, Kristalina Georgieva flagged a “more pronounced” slowdown in India this year while the World Bank sliced its growth forecasts, from 7.5% to 6%, highlighting decelerated domestic demand and reduced government spending as the key drivers. This is the largest projected cut amongst South Asian nations and follows the Reserve Bank of India’s (RBI) growth downgrade earlier in the month. In an effort to boost the economy, the RBI has cut interest rates five times this year, having revised growth forecasts to 6.1% from 6.9% for 2019; still a very impressive growth rate, however. But, a prolonged period of weaker growth and a growing budget deficit will no doubt put pressure on Modi’s fiscal consolidation plans.
In July we heard that India would be looking to tap international markets for the first time with a USD 10bn deal this month; sources say the paper could be yen and euro-denominated to keep yields lower. If the deal does come, it may attract a number of investors, especially those searching for yield in a market where ~USD13tn global bonds are trading at negative yields. Demand may also be supported by Bloomberg’s announcement to help India gain inclusion in global bond indexes.
Our proprietary Net Foreign Asset model views India as a 3 star country, having net foreign liabilities less than 50% of GDP and is therefore within our parameters to invest. We have not looked to add a position in India simply because we cannot find value within the region.