by Taher Badshah – Chief Investment Officer, Invesco Mutual Fund
Even as world economies have been in a state of steady expansion when measured over considerably long periods, this has been punctuated by several difficult periods of uneven growth. India, like many other economies too has seen its own set of challenges in the past 10 years, including Covid, but can be said to have emerged macro-economically stronger from the same.
In the past decade, the influence of global central bank monetary policy on macroeconomics has been unprecedented and this is unlikely to change in the foreseeable future. Hence, as India deservedly tries to earn its place in the sun in the coming years, it will have to battle the global backdrop in doing so. While we think India will witness a better economic cycle in the coming few years, present global monetary and inflationary conditions will present temporary hurdles in this journey. In my view, the lagged impact of the steep interest rate hikes of 2022, will create growth pressures in 2023 for the world at large, including India. With the post-Covid pent-up demand recovery largely behind us, India’s economy may take a breather in 2023 as it too re-adjusts to slowing global growth.
While in the past, India undeniably has had several false starts, the conditions for a favourable investment cycle have never looked better. The confluence of stable balance sheets of each of the four vital pillars of any economy, namely households, corporates, banks, and government, lends strong credence to this proposition. I believe, investment opportunities arising out of this fresh investment cycle will be far more rewarding than ever before. Even as consumption has been regarded as India’s mainstay, it will be the manufacturing and industrial economy of India that would surprise. Investment and capital expenditure push was the centrepiece of the recent Budget too with capital investment outlay increased by 33%. This should further help infrastructure-oriented sectors and create multiplier effects that eventually feed into stronger consumption.
On current reckoning we expect normalisation of global financial conditions starting 2024 as impact of the likely global slowdown wanes, inflation and interest rates return to trend and India’s structural growth drivers assert themselves more meaningfully. Meanwhile, India’s premium valuations have been coming off in recent months and we expect this to extend into CY2023, opening up exciting opportunities for medium-term returns from the markets for 2024 and beyond.
Investment conditions in India