India’s fight for investor attention in 2020
Credit to Author: Peter Lundgreen| Date: Fri, 20 Dec 2019 17:02:32 +0000
All large asset managers have now released their forecast about what investors can expect in return of their investments in 2020. Unsurprisingly, the expectations are positive, though I agree with the optimistic view on the coming year. The highest returns are seen to come from the Emerging Market countries, which I am also in line with, though I argue that the returns from the different Emerging Market countries will vary a lot, and therefore investors must be very selective with the allocation.
Among Asian Emerging Market countries, India is a natural investment destination, and if one considers India’s economic development over the past five to six years, some good reforms have been implemented. However, the backside of the medal is that there have been way too few implemented reforms to maintain the very high gross domestic product (GDP) growth rate that has helped the country’s economy in the past, and that is needed for the GDP per capita to be retained.
A few years ago, the Indian government had the dream that the country would be a yearly world champion in GDP growth, but since then, economic growth has dropped steadily from typically 8 percent per year to just the current 4.5 percent in annual growth rate.
One could argue that it is still a high growth rate, but India is one of the countries where there still is a growing population. Therefore, the GDP growth must be above 8 percent, otherwise, people cannot maintain their living standard, but this is now just one of India’s challenges.
India is still known as an “outsourcing destination,” but for this business model to work well, the global economy must show a stronger growth than where it currently is. Several developments support the improvement of the world economy next year, but it will not be a growth leap. Therefore, it remains my assessment that countries with a robust to strong private consumption, and/or countries with fiscal maneuver room, will become attractive investment destinations over the next 12 to 24 months.
In such key areas of any economy, like the fiscal policy and private consumption, India is also challenged. The consumer confidence has dropped significantly during this year, and a lot indicates that the statistics speak the truth. At the beginning of the year, there was good optimism in India, but it is noteworthy that the decline in private consumption in India this year is so large, that it amounts for 40 percent of the overall global decline in private consumption growth so far this year.
I also regard it is important for the overall picture of households that the consumer confidence survey is measured among 5,000 consumers in the six big cities: Bengaluru, Chennai, Hyderabad, Kolkata, Mumbai and New Delhi. The respondents give the usual expectations about their future household income, job situation, price trends, etc. However, the survey is made in the large Indian cities, where many have already achieved a certain standard of living.
Several reports from rural areas in India now indicate that the decline in GDP growth rates is starting to hit some rural areas quite severely, the decline in household income means that it is difficult to afford daily meals.
India, since long, has a notorious government budget deficit, which, however, “only” has been between 3.3 to 4 percent of GDP in the past five years, but it has only helped to keep the government debt stable as a share of GDP. But with a government debt of 65 to 70 percent of GDP, there is no pronounced fiscal flexibility like a number of other Emerging Markets countries have, with only 40 to 50 percent of GDP in government debt. Therefore, my outlook for India next year is that economic policy will be characterized by redistributive patch solutions, like giving aid to the rural population, but the major economic reforms will miss out.
Obviously, I keep my long-standing view and argue that India is facing mounting problems here, just before the beginning of the next decade, rather than dealing with solutions to the problems. Quite differently are some of the Association of Southeast Asian Nations countries taking advantage of their opportunities, through an even more expansionary fiscal policy next year. These are countries like Indonesia, Thailand and the Philippines. It is my clear position that these are examples of countries that will get investors’ attention during 2020.
Peter Lundgreen is the founding chief executive officer of Lundgreen’s Capital. He is a professional investment advisor with over 30 years of experience and a power entrepreneur in investment and finance. He is an international columnist and speaker on topics about the global financial markets.