India rising on global investment landscape. Get ready for a long equity rally

For India to reach its peak potential, the consumption story of its youthful middle-class was never going to be enough. The services sector, currently commanding 54 per cent of India’s economy, is incapable of absorbing the teeming graduates emerging each year, a fact painfully underscored by the pandemic. The obvious solution, long understood, has been to pivot to manufacturing and exports. However, despite the structural reforms of the Modi government, the singular lack of capital formation over the past decade has stymied India’s promise.

But then came Donald Trump & coronavirus, the two inadvertent catalysts for a dramatic resurrection of India’s fortunes. Trump’s anti-China rhetoric converged global angst on China’s continued disregard for global order and human rights. This triggered a geopolitical push to position India as the balancing factor in South Asia. Covid-linked disruption of global manufacturing and shipping has only served to emphasize the need to reduce dependency on China.

India has three primary assets in its favour: the potential for significant domestic demand, government’s drive to encourage manufacturing and a distinct demographic edge – Shifting Global Value Chains, White Paper by World Economic Forum & Kearney, Jun’21.

China Plus One

Western democracies and multinational companies prize a rule-based international order and China’s resolute refusal to play by the rules has rattled them. Enforcement of a fascist security law in Hong Kong, militarist control over South China Sea, economic imperialism through the Belt Road Initiative, human rights violations in Xinjiang province, crackdown over its tech giants in a bid to control citizen-data and now embracing of Taliban in Afghanistan are all actions not befitting a responsible superpower.

Suitably spooked, global companies are actively de-risking their businesses from China’s dominance. Japan became the first major country to offer subsidies to its companies to move production out of China into other South Asian countries. Bilateral and multilateral partnerships have emerged to counter China, like the Quad aligning Japan, US, Australia and India. Another such policy measure is the Supply Chain Resilience Initiative (SCRI) India, Japan and Australia to hedge against China.

Read more at: https://economictimes.indiatimes.com/markets/stocks/news/india-in-a-sweet-spot-of-global-consumption-and-manufacturing/articleshow/85946128.cms