India has come out of an investment winter. Post COVID recovery and a large push through government expenditure, investments are making a comeback, said a new report.
There has been a spend of $14 trillion on investments since independence. This includes spending on housing by households, infrastructure creation by the government and private capital expenditure, DSP Investment Managers’ Netra March 2023 highlights added.
India, with its free market and profit-focused businesses has become a better investment option and has delivered superior returns to the investors, the report said.
The report added that in spite of poor investment growth over the last many years, India has spent $7 trillion on new investments over the last 9 years. As the base becomes large this number will repeat itself in the next 6 years.
The capex cycle is likely to surprise on the upside in the next few years, it added.
Non-performing loans (NPAs) are no more a menace. Decadal low NNPA ratio for SCBs is a source of comfort. Provision coverage ratio remains high. These numbers are likely to improve further in FY24.
The report added that high oil prices and a steep import basket of manufacturing imports caused India’s trade deficit to balloon in FY23. Between April 2022 to December 2022, India recorded a monthly trade deficit of $27bn- a record.
Oil prices have since cooled off, and the normalisation of supply chains is also reducing India’s goods import bill. At the same time, India’s services trade is racing towards record surplus.
A combination of a normalising import bill and steady growth in service exports is likely to take pressure off India’s current account. This is likely to benefit the Rupee in FY24 and give the RBI more options in managing India’s external situation and FX policy, the report added.
Corporate India’s financial health has improved, with record profitability in FY22 and the paring down of corporate debt creating a favourable environment for increased CAPEX.
The report added that it is important to pay attention to valuations in a growth market like India. Investors should consider adding equity exposure during market declines and when there is valuation comfort.
The increase in oil and gas demand after the opening of the COVID-19 lockdowns has led to a surge in investment in the upstream industry. With recovering crude oil prices, there is now a trend towards capital expenditure to raise capacity and ease supply-side uncertainty. Oil and gas majors are also returning capital to shareholders through buybacks and dividends.
Road transport is responsible for around 50% of global oil consumption. Despite being the two largest markets for automobiles, auto sales in the US and China have not seen any growth in the past 5 years.
The report also added China has been a popular investment destination and has grown rapidly, but faces competition in delivering returns due to uncertainty around business profits.
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