Special: India, the economic powerhouse, marches forward

India has risen to the top position in Morgan Stanley's portfolio following its recent upgrade from equal-weight to overweight. Morgan Stanley upgraded India due to its secular leadership, anticipating sustained superior EPS growth in USD terms compared to other emerging markets. Remarkably, this upgrade transpired merely four months after the brokerage elevated India from underweight to equal-weight in March.

Jonathan Garner, Chief Asia and EM Equity Strategist at Morgan Stanley told CNBC-TV18 that India's performance has lagged behind the broader Asia and EM markets over the past 9 months, marked by relative volatility. However, upon reevaluation, our process strongly indicated profit-taking in Taiwan, cautiousness with China, and underweighting Australia. On the contrary, for India, several secular market drivers are falling into place, he said.

Additionally, India's youthful demography supports equity inflows. Garner also noted the rupee's increased stability and potential for appreciation in real effective exchange rate terms, a contrast to the Chinese renminbi's structural depreciation.

In another interview with the Economic Times, Garner emphasized China's lacklustre economic recovery and demographic challenges. He contrasted India's demographic advantage and robust economy, including strong manufacturing and services sectors, real estate transactions, inward FDI, and infrastructure development.

Garner elaborated, "India's GDP per capita is around US$2,500, whereas China's stands at about US$13,000. China's growth model faces difficulties, while India's growth potential is extensive. Household debt ratios to GDP in India are notably low, in contrast to China and North Asia. India offers substantial growth potential due to its attractiveness for firms relocating production from various countries."

The strategist observed a shift of funds from China to India and predicted further movement in that direction. He highlighted the development of the emerging markets ex-China products, where India holds a significant weight. This structural shift is influencing portfolio flows and benefiting India's position within the global investment landscape.

Foxconn alone brings in billions

An instance of this shift in India's position in the global investment landscape was seen on July 28 during the Semicon India conclave in Gandhinagar where Foxconn Chairman Young Liu emphasized the strong partnership between Taiwan and India, affirming that the former will remain India's most trusted and dependable ally.

Foxconn has unveiled plans for significant investments amounting to $2 billion over the span of five years in various regions of India, including Karnataka, Tamil Nadu, and Gujarat. The company has also conveyed its intention to expand its workforce in India, currently numbering 40,000 employees engaged in iPhone manufacturing. This workforce is projected to double within the next few years.

In Karnataka, Foxconn has partnered with Applied Materials for a collaborative venture aimed at developing chip-making tools, with a substantial investment totalling $250 million.

Notably, a memorandum of understanding has been established between Foxconn and Tamil Nadu Government, outlining a $194 million investment in an electronics components unit situated in Kanchipuram. This project is anticipated to generate around 6,000 new job opportunities. Concurrently, discussions have been reignited concerning the establishment of an electric vehicle manufacturing facility in the state.

Indian on course to be global auto component supplier

Talking of the auto sector, the Automotive Component Manufacturers Association of India (ACMA) revealed that the turnover of the auto component industry experienced a remarkable growth rate of 33 per cent, reaching Rs 5.59 trillion during the fiscal year 2022-23 (FY23). This surge can be attributed to factors such as pent-up demand, improved availability of raw materials, and increased sales of larger vehicles, particularly sport utility vehicles (SUVs).

Notably, auto component manufacturers witnessed a shift in their revenue sources, with about 2.7 per cent of their earnings originating from electric vehicle (EV) manufacturers. This marked an increase from the previous fiscal year, where the share was merely one per cent.

While the export of auto components demonstrated a 5 per cent increase, reaching $20.1 billion, imports also saw growth of 11 per cent, totalling $20.3 billion. Notably, approximately 30 per cent of these imports originated from China.

Sunjay Kapur, the President of ACMA, acknowledged that despite challenges, such as conflicts in Europe, the industry continued to thrive. He attributed this resilience to factors such as the China+1 strategy, which has driven exports to new markets, and the industry's substantial investments in advanced technology. These developments position the Indian auto component sector to be a global supplier, presenting a favourable outlook for the industry's growth in the coming years.

Meanwhile, in the latter part of July, foreign portfolio investors (FPIs) escalated their investments in several sectors, including financial services, capital goods, information technology (IT), automotive, and construction companies.

FPIs channelled a total of Rs 4,464 crore into financial services firms while allocating Rs 3,211 crore towards capital goods. In addition, they made significant investments of Rs 1,631 crore in IT stocks. Further diversifying their portfolio, FPIs also acquired shares worth Rs 1,609 crore in the automotive and auto components sector, as well as Rs 1,520 crore in construction stocks.

The Narendra Modi government's policies have brought about a transformational change in the country and is now looking to make a significant impact abroad. Take, for instance, the Unified Payments Interface.

Ritesh Shukla, the CEO of NPCI International, the entity responsible for operating India's primary retail payment and settlement system, has revealed that the count of nations where the Unified Payments Interface (UPI) is operational is poised to double within the next 12 to 18 months.

Shukla expressed intentions to collaborate with these nations to assist in crafting their own customized versions of UPI while maintaining their sovereignty. He conveyed to Mint, "Numerous countries globally face challenges akin to what we encountered prior to the emergence of UPI. These issues encompass financial inclusion, bolstering rural economies, incubating fintech, ensuring transparency, and more. Our focus is on collaborating with these countries to facilitate the creation of their distinct UPI models in a manner aligned with their sovereignty. This endeavour includes not only technology exchange but also the sharing of business expertise, including how we effectively operate this platform."

"This constitutes the initial phase that we term 'infrastructure development'. The second facet of our strategy involves interlinking India's UPI with other analogous ecosystems to cater to two primary use cases. Firstly, enabling merchant payments -- when international visitors like tourists, businessmen, or students venture abroad, they should be able to avail of UPI-powered apps across various markets through QR code scanning. Secondly, catering to remittances. With approximately 30 million Indians residing outside the country, sending around $100 billion annually, the current experience is fragmented and varies depending on the region. Our aim is to streamline and standardize this entire user experience."

The internationalisation of home-grown ideas has ensured that India consolidates its position in the world as a net provider of solutions and the ideal destination for global investors.