In what has been a tough period for the global economy, India has been one of few success stories in recent months. But a recent State of the Indian Economy report issued by the Reserve Bank of India (RBI) has revealed the positive growth seen in the last quarter of the 2022/23 fiscal year has been maintained.
This will make encouraging reading for investors who have had their heads turned recently by regular positive updates from Indian markets. “Investment activity is also expected to improve, drawing strength from the thrust on capital expenditure in public spending and moderation in commodity prices,” the report stated. With the Reserve Bank predicting continued growth next quarter, traders are advised to watch out for updates on the Indian markets via the economic calendar.
What’s in the RBI report?
The report from the RBI goes on to say that, in contrast to the global picture, inflation in India dropped below 5% for the first time since November 2021, and that “banking and financial sectors posting strong revenue performance”.
The better-than-expected performance on inflation is a result of two critical factors: a continuing fall in the wholesale price of staples such as wheat, oil, and eggs, and the tightening of monetary policy.
Why is India so popular with investors right now?
In April 2023, Apple CEO Tim Cook visited Mubai to celebrate the opening of the company’s first pysical store in India. When such global giants act, the world takes notice. British fast food chain Pret a Manger has also opened its first Indian store recently – a further indication of the level of support for investments in India at present.
And why now? Well, India is now officially the world’s most populated nation. And a significant proportion of that population is of working age. These two factors make the country fertile ground for global brands such as Apple and Pret a Manger that appeal to that exact demographic.
All that is needed for those brands – and subsequently the Indian markets – to flourish, is sufficient employment opportunities for the labor pool. The types of employment opportunities that follow where major brands lead.
Pret a Manger has already opened a second store in Delhi, and other global brands are expected to set up stores in a country that looks to be on the verge of an economic boom.
Other factors for investors to consider
All this positive news comes as Indian banks prepare for a “a complete transition away from the London Interbank Offered Rate (LIBOR) from July 01, 2023”. The UK Financial Conduct Authority announced in March 2021 that LIBOR was unsustainable and would be gradually phased out in the smoothest way possible.
That statement came while the world was still gripped by the pandemic. At the time, it was unclear exactly what impact the decision would have and what the state of each nation’s economy would be post-Covid. With businesses all over the world being forced into a state of flux – or worse – many investors gave little heed to what might happen two years down the line.
We now know that, financially at least, Indian market has emerged in a relatively strong position compared with several other emerging and major economy. Nonetheless, some investors will still be wary of the impact the cessation of LIBOR might have on the global economy.
Therefore, caution is the watchword in many camps, with investors keen to see how markets react and whether this move will bring about further inflationary pressures – at least in the short term. As the FCA pointed out, it was unsustainable and had to be withdrawn in the long term, but it does leave a gap that needs to be filled.
However, aside from the performance of the Indian economy, there are green shoots in other parts of emerging Asia. And the UK economy is still under significant strain. So, it may be that the retraction of LIBOR is felt most keenly close to home.
But the markets are a fickle beast, and while some may take the pessimistic view of this future development, others will be looking for signs of where there is potential to be exploited in the markets as the outputs of the FCA decision are realized.
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