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A few of my colleagues and I were in India for a week late last year. While there, we met with Indian policymakers at the Ministry of Finance, the Reserve Bank of India (RBI), and other government offices. We also visited leaders of large Indian banks and several other corporations. Here are some of my high-level takeaways from that trip.
I came back very positive on the medium- to longer-term structural outlook for India, for the following reasons:
Political and policy stability under Prime Minister Narendra Modi, who remains very popular with most voters (and, as of this writing, a shoo-in for reelection in May 2024), will be key to continued structural momentum in India.
Beyond that, my main near-term concerns are that: 1) the country’s core inflation rate is likely to remain elevated (comfortably above the RBI’s 4% target) for most of 2023; and 2) the current-account trade deficit may widen further from its already high levels as global demand likely softens. While the RBI’s monetary policy committee members sounded pretty dovish late last year, I suspect that the persistence of inflation may lead the central bank to eventually tighten policy a bit more than the market was pricing in at last check.
I remain generally positive on Indian equities given the country’s favorable medium-term growth and earnings environment. While overall market valuation has been quite stretched from a near-term perspective, I still think there are plenty of opportunities for discerning investors at the individual stock level.
For example, I see potentially attractive medium-term opportunities in banks and insurers and in the hospitality industry (see above). I also like a number of companies that may be beneficiaries of the global response to climate change (e.g., renewables, electric vehicles), as well as those that appear poised to benefit from the migration of global supply chains out of China.
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