Better inflation and current account trends for India
India is another emerging market that we find attractive for long-term investors. The country has been one of the growth bright spots in emerging markets; a recovery that we believe is broadening and reaching many parts of the economy. In addition to benefiting from some of the same forces that support emerging markets overall, we believe India’s economy is turning the corner largely because of a two-year rout in energy prices. India imports nearly 75% of its oil (source: Central Statistical Office, India), so sustained low crude prices improved the inflation picture and current account balance (source: Bloomberg data). Much like Mexico, structural reforms are crucial in boosting India’s productivity. We expect to see continued policy progress and a turn in the credit cycle to further support the improvement in fundamentals.
Market Realist – Consider buying Indian stocks.
Cheaper oil prices have helped improve India’s current account balance while also bringing down inflation from double digits in 2013 to ~5.5%, which has enabled the RBI (Reserve Bank of India) to cut interest rates by 2.5% since 2015.
Also, India’s (INDY)(INDL) fiscal deficit has been reined in, which has increased investor confidence in the Indian government, and has drawn funds to India. All these factors have contributed to economic growth of 7.9% in the previous quarter on a year-over-year basis.
The Indian government will soon be hiking wages of government employees by 24%, which could help improve consumer demand. Also, a healthy monsoon season could lead to an increase in rural demand.