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India Playbook 2024: Aiming for a trillion dollars in forex reserves by 2029.


Date: 24-05-2024
Subject: India Playbook 2024: Aiming for a trillion dollars in forex reserves by 2029
India's economic trajectory over the next five years positions it as a prime target for global investments. This outlook is driven by a stable macroeconomic environment, robust earnings growth among Indian corporations, and increasing weightage in the MSCI Emerging Markets (EM) index. The inclusion of Indian debt in prominent Emerging Market Bond indices further enhances the attractiveness of India's investment landscape. With software services and remittances significantly contributing to forei ..

India's forex reserves stood at an all-time high of $646 billion as of April 1, 2024, marking an impressive increase of $68 billion from the previous year. Forex reserves have doubled in the last 10 years. A key driver of this growth has been remittances, which now exceed $100 billion annually, outpacing capital account inflows. Looking ahead, capital account inflows—including Foreign Direct Investment (FDI), Foreign Portfolio Investment (FPI) in equities and debt—are projected to surpass $100 b ..

India's prominence in the MSCI EM index has grown substantially, with its weightage increasing from 9.2% in 2020 to 18% in 2024. In contrast, China's weightage has decreased from 39% to 25% over the same period. Despite this shift, Foreign Institutional Investor (FII) ownership in India has declined to a decadal low of 16.6%. However, this trend is expected to reverse following the upcoming Indian elections, assuming the establishment of a stable government. In such a scenario, FII flows could p ..

The inclusion of Indian debt in the JPMorgan and Bloomberg EM indices has already resulted in substantial foreign inflows. FY2024 alone witnessed $15 billion in foreign debt inflows, a significant increase from virtually negligible levels in preceding years. This trend underscores the growing confidence of global investors in India's debt market. (Source: JM Financial, Kotak)


Over the past decade, FDI inflows into India have averaged $32 billion annually. Although there was a dip in FDI in FY2024, it is anticipated that FDI levels will return to their historical averages in the coming years, further supporting capital account inflows and economic growth. (Source: JM Financial, Kotak)

Government CAPEX Initiatives:

The Indian government, led by the Bharatiya Janata Party (BJP), has significantly increased its proposed CAPEX spending for F ..

India's current account deficit has improved markedly, shrinking from 4.8% of GDP in 2013 to under 1% in 2024. This improvement has been driven by a strong software sector and rising remittances, which have increased by 180% over the past decade. Additionally, favourable oil import terms with Russia have helped manage the oil import bill. Reduced imports intensity due to thriving domestic manufacturing, especially in Electronics and Semiconductors, will lead to lower imports - 19% of GDP in 2019 ..

Based on a bottom-up analysis of anticipated inflows, India could see incremental reserves increase by $80-90 billion annually, potentially reaching $1 trillion by FY2029E. This influx of foreign currency is likely to strengthen the Indian rupee, reduce corporate borrowing costs, and enhance the profitability of Indian businesses. Consequently, India is poised to become a manufacturing hub with a competitive edge in the global market. (Source: JM Financial, Kotak)

India's strategic economic initiatives and a favourable investment climate are set to drive substantial forex inflows over the next five years. Achieving $1 trillion in forex reserves by 2029E is not only a realistic target but also a milestone that will further solidify India's position as a global investment destination. This growth will support a stronger rupee, lower capital costs for businesses, and foster increased corporate profitability, thereby enhancing India's economic stature on the  ..



Source Name : Economic Times
 

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