- India’s improving medium-term outlook will generate a lot more optimism over the next few quarters.
- We capture next year’s themes in 3Cs
- Growth juggernaut is expected to maintain momentum at over 6%.
- Risks to our view are more exogenous in nature, with elections a key domestic watchpoint.
- A stable USD/INR with a downside bias in 2024 on India’s investor appeal.
Please download the PDF to read the detailed report.
ECONOMICS (Radhika Rao)
In the past year, the narrative around the Indian economy has turned decisively positive. Output has expanded by amongst the fastest pace compared to major economies in 2023, setting 2024 on a strong footing. The country is on track to emerge as the third largest economy in the world within this decade, after overtaking the United Kingdom to become the fifth largest in the world on nominal GDP (US dollars) last year. Demographics are favourable, as the economy not only boasts of a younger median age compared to China, US, and Europe, but also a high working age population ratio which is expected to stay favourable for at least the next two decades. An expanding growth pie is expected to lift per capita GDP, which trails most emerging market peers at this juncture. We capture next year’s themes in 3Cs – Capital expenditure, Composition of (value-added goods and service) exports, and Continuity (reforms and governance). These, we believe, will make India’s outlook compelling not only in 2024 but also over the next few years, building on our observations in the previous outlook note (India 2023 Outlook: Strategic opportunity).
Capex spending as a key thrust
The central government has led the revival in capital expenditure in the past 5 years, with the FY24 outlay rising to a record 3.3% of GDP from 2.7% prior. Together with the public sector entities, the total capex expenditure stands to rise to above INR15trn this year. The economy will enter a busy election period over the next six months, raising the likelihood that capex disbursements might be frontloaded, helped by strong year-to-date tax revenues. While few populist announcements are likely (besides the cut in cooking gas prices and extension of free food scheme for another 5 years), we are not of the view that capex outlays will be materially cut to accommodate higher revenue expenditure. Cleaner balance sheets of the private sector are expected to help the latter participate in the capex cycle, with the ball set rolling by fiscal incentives like the Production Linked Scheme (PLI), sector specific programs (for instance semiconductors) and green transition plans.
Changing Composition of exports (value-added goods and services)
Total goods and services trade made up nearly 50% of GDP in FY23, with exports at a multi-year high of ~23%, assuming an important role as a growth catalyst. Nominal goods exports are up 37% yoy in FY22-FY23 to a record high, compared to the pre-pandemic average in FY18-19. This is driven by the changing composition of exports, with the proportion of value-added i.e., manufacturing and processed exports rising faster than the traditional and primary goods, with the former capturing engineering goods, electronics, petroleum, drugs & pharma, compared to textiles, furniture, and leather products, for instance. Value added exports made up about 65% of the shipments in FY24 (year-to-date).
Continuity (reforms and governance)
A host of reform building blocks have been undertaken in the past six years – plumbing (streamline application process, introduction of the bankruptcy law, unified GST, digital initiatives including subsidy payments), lower costs (corporate tax cut, fiscal support like the Production Linked Incentive, sector-specific programs, interest subvention etc.), monetary policy (inflation focused), and addressing legacy baggage (cleaner books of key economic agents (corporates, banks etc.). The cumulative impact of these reforms is likely to reflect in the improving total factor productivity trends (residual after capital and labour contributions have been accounted for).
CURRENCY OUTLOOK (Philip Wee)
In 2024, we expect USD/INR to maintain its remarkable stability, with a downside bias. Our forecast aligns with predictions of the end of global interest rate hikes amid a soft landing in the world economy. While central banks may prefer keeping interest rates high to achieve inflation targets, market pressures could drive demands for earlier rate reductions to mitigate the economic slowdown. Looking ahead, Asian currencies, including the INR, are expected to face a less challenging environment in 2024, barring unexpected Fed rate hikes or a severe global economic downturn.
To read the full report, click here to Download the PDF.
Topic
Explore more
E & S FocusGENERAL DISCLOSURE/ DISCLAIMER (For Macroeconomics, Currencies, Interest Rates)
The information herein is published by DBS Bank Ltd and/or DBS Bank (Hong Kong) Limited (each and/or collectively, the “Company”). It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies. The information herein is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction (including but not limited to citizens or residents of the United States of America) where such distribution, publication, availability or use would be contrary to law or regulation. The information is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction (including but not limited to the United States of America) where such an offer or solicitation would be contrary to law or regulation.
[#for Distribution in Singapore] This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) which is Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 65-6878-8888 for matters arising from, or in connection with the report.
DBS Bank Ltd., 12 Marina Boulevard, Marina Bay Financial Centre Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E.
DBS Bank Ltd., Hong Kong Branch, a company incorporated in Singapore with limited liability. 18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.
DBS Bank (Hong Kong) Limited, a company incorporated in Hong Kong with limited liability. 11th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.
Virtual currencies are highly speculative digital "virtual commodities", and are not currencies. It is not a financial product approved by the Taiwan Financial Supervisory Commission, and the safeguards of the existing investor protection regime does not apply. The prices of virtual currencies may fluctuate greatly, and the investment risk is high. Before engaging in such transactions, the investor should carefully assess the risks, and seek its own independent advice.