India’s Outlook Is Surprisingly Bright


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India’s central bank has further tightening to do, but the economy looks as though it can handle it.

Stock investors, too, should consider taking a look: The South Asian country is well placed to handle a global slowdown next year, as long as rebounding global oil prices don’t play the spoiler.

The Reserve Bank of India delivered a 0.35 percentage point interest-rate increase on Wednesday, lower than its previous four hikes. But the bank took a cautious tone, saying policy remains focused on ensuring that inflation heads lower. Consumer price inflation has been above the central bank’s 2% to 6% target range for more than three straight quarters. Despite a slight drop to 6.77% in October—from 7.41% year over year in September—inflation will probably remain above 6% for the next few months.

India’s resilient economic growth—despite global weakness—gives India’s central bank leeway to tackle inflation without worrying about a steep slowdown, particularly with Brent oil down about $40 a barrel from its midsummer highs. India’s September quarter growth came in at 6.3%, significantly lower than the previous quarter’s but much better than developed markets and many emerging markets. The


expects India to grow 6.8% in the current fiscal year ending in March.

With the West facing a further slowdown, India could turn out to be a decent place for investors to park their money—again, particularly if oil prices continue retreating and the rupee finds its feet again. Like many large Asian economies, India is a major oil importer, but its economy is less exposed to exports than many other Asian nations—South Korea and Thailand, for instance. That means slowing demand from developed nations isn’t as pernicious. The World Bank this week revised its growth forecast for India up to 6.9% from 6.5% for the current fiscal year. It expects India to perform better than many other emerging markets, helped by strong domestic consumption.

One potential problem for Indian stock markets is that, relative to the rest of the world, they are already doing pretty well. The S&P BSE Sensex just notched a new high. And Jefferies notes that price to earnings multiples are looking stretched relative to recent history. That would make markets vulnerable if the RBI was forced back into a more hawkish stance—say, by rebounding oil prices driven by China’s reopening.

But if China’s reopening proves tepid rather than torrential and the West remains mired in slow growth, South Asia’s emerging powerhouse could continue to deliver for stock investors.

Write to Megha Mandavia at [email protected]

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