Is India well placed among EMs amidst global financial crisis?

Even amidst heightened volatility in global financial markets and deepening economic crisis in China, India which has rightly claimed the honour of becoming the worlds’ fastest growing major economy remains the best bet for investors among emerging markets. Let’s see how?

Is India’s investment landscape more appealing than its BRICS peers?

Despite slightly succumbing to a global rout amidst fears over China’s economy, India seems to remain a stand-alone portfolio bet for emerging markets investors and fund managers. India’s sound economic fundamentals backed by strong reforms commitment by the investment-friendly Modi government, contrasts with that of China’s economy that grew at its slowest pace since the global financial crisis in the third quarter, while peers Brazil and Russia are on the edge of a catastrophic recession amid an oil price slump & political jitters.

Oil price slump: A boon for Indian economy

The downturn in oil prices has come as a blessing in disguise for Asia’s third biggest economy which imports nearly 70 per cent of its oil needs. However, the crude turmoil has pushed oil-driven Russia and Brazil on the cusp of a recession.

Given that oil is India’s largest import item, a reduced oil import bill has narrowed India’s fiscal and current account deficits while pushing inflation well below the targeted 6 per cent, allowing room for the Reserve bank of India for further rate cuts to revive the investment growth cycle.

From 8.8 per cent in January 2014 and 7.31 per cent in June 2014, India’s consumer inflation has plunged to 4.41 per cent in September 2015, luring the investors to park their funds in Indian markets.

India’s improving investment scenario has gained momentum in comparison with the gloomy outlook of its BRICS peers. At the time, when sanction-hit Russia is witnessing a capital flight, while FDI prospects in Brazil is also moving in opposite direction and China growth plummeting to the weakest rate since the global financial crisis of 2009, India’s investment climate remains apt amid the much campaigned ‘Make in India’ reform & hikes in FDI caps in sectors such as defence & insurance, coupled with investor friendly tax regimes.

Is India falling prey to a global slowdown?

Not withstanding strong fundamentals, Asia’s third biggest economy seems to have succumbed to a global rout amidst fears over China’s economy.  Growth has faded across both the manufacturing and service sectors, fully justifying the Reserve Bank of India’s aggressive 50 basis points interest rate cut last week, as softening inflation leaves ample leeway for monetary easing.

India’s services activity expanded at a weaker clip in the month of September as demand eased amidst tough economic conditions. Meanwhile, India’s manufacturing activity also expanded at the slowest pace in seven months in September as factories boosted output at weaker rates amidst waning demand, signaling a loss of momentum in the Indian economy.

India’s services activity gauge fell from 51.8 in August to 51.3 in September, whereas the gauge measuring manufacturing activity in India slid to 51.2 in September from 52.3 in August.

Adding to the economy’s setback, the Washington based lender, International Monetary Fund (IMF) has cut its growth forecast for India to 7.3 per cent from 7.5 per cent in FY 2015-16 predicted earlier.

Since the beginning of last month, forecasts on India’s economic growth by various agencies have been mostly negative, however, the overall picture does not look too gloomy as key reforms of Modi government along with RBI’s dovish stance may bolster economic growth and accelerate investment cycle.

Further, the Prime Minister Narendra Modi’s assurance that the stalled Goods and Services (GST) reform amidst Parliamentary logjam, will be rolled out in 2016, to improve the investment climate in the country will provide the much needed rest on the growth front. The governments’ big thrust area is to improve and expand manufacturing competitiveness of India and it has undertaken numerous initiatives to further enhance the ease of doing business in India.