In an exclusive episode of ETMarkets World View, Abhishek Banerjee of LotusDew Wealth opens up about Indian sectors with potential, the RBI governor's stance on GDP growth, and much more.
Recently, India recorded a current account surplus of $5.7 billion. What does it say? India was also included in the JPMorgan bond index recently. What key changes should we be aware of?
Abhishek Banerjee: India's current account surplus is noteworthy because historically, India has been a current account deficit country, importing more than exporting. This deficit typically keeps the currency weaker to make exports more attractive and imports more expensive, ..
However, the current surplus indicates a shift where India is producing more of what the world needs and importing less. Typically, a surplus should strengthen the INR. While a stronger INR might seem positive, it could hurt export competitiveness, as a weaker INR is generally better for export-driven growth.
With India's inclusion in the JPMorgan Global Bond Index, substantial foreign investment is expected. This inclusion, with a 10% allocation, could bring around $1.150 billion into India. The government aims to maintain a stable rupee to attract these foreign investments, providing investors with both investment income and FX gains. This strategy may cause the rupee to strengthen after these inflows.
However, a stronger INR could negatively impact export-oriented companies like IT services and pharma. Pharma companies might cope better due to their operating leverage, allowing them to produce more at lower costs. In contrast, IT services, with linear costs, could face more significant challenges. They might mitigate this by exploring new markets such as Australia and Southeast Asia.
Overall, while India's increased production and exports are positive, the shift necessitates careful sector allocation in the near term to manage potential impacts on export-oriented industries.
Lastly, let's discuss the recent RBI upward guidance predicting 8% GDP growth for India. Do you think this is optimistic or realistic?
Abhishek Banerjee: I believe this is realistic. RBI Governor Shaktikanta Das, known for his conservative approach, projecting 8% growth is significant. His conservatism suggests this projection might even be slightly understated, potentially reaching 8.2% or 8.3%
Applying the rule of 72, an 8% growth rate means the GDP would double in nine years. This trajectory suggests India could grow from $4 trillion to $8 trillion by the end of this decade, and then to $16 trillion and $32 trillion in subsequent decades. Projections indicate India could become a $35 trillion economy by 2050, assuming it maintains this growth rate. This is similar to China's growth from the 1990s to 2015, which propelled it to its current economic status
To achieve this, India must manage resources well, maintain a stable policy environment, and treat external and domestic investors equally.
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How will the inclusion in the JPMorgan Bond Index impact Indian govt bonds? Will it boost the demand for Indian government securities?
Abhishek Banerjee: Yes, it will boost demand for both Indian government and corporate bonds. The corporate bond market in India is still developing, with relatively few companies engaging in external commercial borrowing. An example is Byju's recent $1.5 billion borrowing, which faced challenges. However, public companies with ..
Increased demand for bonds will drive down government yields, making real estate loans cheaper and reducing inflation. This could benefit sectors like manufacturing and real estate. While the services sector might face challenges due to a stronger rupee, reallocating towards sectors with higher operating leverage, such as financial services, manufacturing, and pharma, could be beneficial.
We've discussed the current account surplus. Let's talk about the current account deficit. India's deficit moderated to $23.2 billion (0.7% of GDP) for 2023-2024, down from $67 billion (2% of GDP), mainly due to a lower merchandise trade deficit. Which sectors are impacted, and what does this mean?
Abhishek Banerjee: The reduction in the current account deficit is largely due to increased exports, driven by initiatives like the Production-Linked Incentive (PL ..
We have several ongoing conflicts, such as the wars in Israel and Ukraine, and tensions in the South China Sea and Taiwanese waters. Additionally, there are internal conflicts in countries like Hungary and Kenya, where recent tax issues led to people storming the parliament. The world is far from conflict-free, and these factors must be considered. India still is the most reasonable level-headed country, which can offer scale and large investment opportunities. Unless India makes a significant m ..
Let's discuss the recent services exports data, which shows a 4.1% year-on-year growth in Q4 23-24. What is your outlook on the travel sector in India, especially considering the recent success of the Ixigo IPO? What is happening within the services sector overall?
Abhishek Banerjee: Travel is crucial for economic growth, with significant employment impact—every Rs 100 spent on travel generates Rs 50 in employment. Sectors like travel, tourism, and hospitalit ..
India's rich heritage has always attracted tourists, and there's vast potential for developing this sector further. Organized travel, religious tourism, and exploring under-visited regions like the Northeast offer significant opportunities. As per capita income rises, discretionary spending on travel and leisure will likely increase, boosting this sector.
The recent Ixigo IPO's success highlights the growing interest and potential in the travel sector. With proper development, travel and tourism can become major revenue generators for India.
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Source Name : Economic Times