India’s economy: Spicing up global growth and investment portfolios 

India continues to be the world’s fastest-growing major economy, despite facing headwinds in the form of high interest rates and a temporary slowdown in government spending. We believe its growth story remains compelling.

The Indian economy expanded by 6.7% year-on-year in the second quarter of 2024, falling short of the Reserve Bank of India’s (RBI) target of 7.1%. This slight deceleration was primarily due to contractions in government spending and exports. However, we remain optimistic about the country’s economic outlook, forecasting a robust 7.0% growth for full year 2024.

This optimism is supported by several factors. We expect increased public spending, particularly following Prime Minister Narendra Modis new budget plan, which focuses on infrastructure development and youth employment. Additionally, a strong agricultural season and an improving outlook on consumer confidence are expected to bolster growth in the coming months.

Easing inflation

Inflation, a key concern for policymakers, showed a slight uptick in August at 3.65%. However, this figure remains close to the RBI’s medium-term goal of 4%. Food inflation, which accounts for nearly 46% of India’s Consumer Price Index (CPI) basket, is likely to ease in the near future due to above-average monsoon rains boosting agricultural production.

The RBI’s monetary policy stance is expected to shift from hawkish to neutral in its October 9 review. This change comes as inflation remains under control and the US Federal Reserve’s recent rate cut reduces the risk of capital outflows. Markets anticipate the first rate cut by the RBI in its December meeting, signaling a potential easing cycle.

Attractive option

Additionally, as the Indian rupee (INR) is expected to stabilize against the US dollar, with the USD/INR exchange rate projected to close the year at 83.50, currency risks for Philippine investors may be mitigated. This stability could make Indian fixed-income securities an attractive option for those seeking to diversify their bond holdings.

However, as with any investment, consulting an investment counselor familiar with both the Philippine and Indian markets is recommended. Potential returns and inherent risks should always be considered.

Considering its diverse and dynamic demographics, India’s robust economic outlook presents compelling opportunities. As such, it may be wise to diversify portfolios by including Indian equities, particularly in sectors poised to benefit from increased government spending, such as infrastructure and technology.

For investors who are interested in Indian equities, reaching out to an account manager in Trust Banking Group is ideal as close monitoring of investments is being done.

In summary, while India’s economy faces challenges, its growth story remains intact. With strategic government spending, improving agricultural conditions, and careful monetary policy management, India is well-positioned to maintain its status as a global economic powerhouse.

SETH ANGELO GAMBOA is a Research Officer from Metrobank’s Trust Banking Group who covers both Philippine and offshore macroeconomic research. He graduated cum laude from the University of the Philippines Los Baños with a degree in Economics, specializing in Development Economics. He is a Certified UITF Sales Person (CUSP) and is a Certified Treasury Professional (BAP-TCP). Seth enjoys playing video games, watching anime, and going on out-of-town trips with his loved ones.

ANNA DOMINIQUE CUDIA, MBA, CSS, is the Head of Markets Research at Metrobank’s Trust Banking Group, spearheading the generation and presentation of financial markets insights to internal and external clients. She used to be with Metrobank’s Investor Relations, where she brought in international awards and took part in various multi-billion peso and dollar capital raising activities. She holds a Master of Business Administration (Finance) degree, with distinction, from the University of London, and industry certifications in finance. She is a naturally curious person and likes to travel here and abroad.