Rising investor confidence and slow but stable overall growth confirms India’s economic recovery in 2021. However, the country’s standing as a top Emerging Market is put to the test by a second wave of Covid-19 cases and its export competitiveness.
India has been rated as the second most attractive Emerging Market (EM) after China in a recent report. Like the rest of the World, it had felt the impact of Covid-19 and the series of closures for much of 2020, with economic indicators slowly picking up in the last Quarter. More importantly, its standing among large EM has been confirmed and improved according to February 2021 numbers.
LiveMint’s EM Tracker shows that India has built upon its strengths, currently ranking right behind China in most of the composite indices on financial and industrial activity. Crucially, foreign investors have been backing up the Indian stock market, while others in the EM League have seen a general sell-off trend. FDI in India rose 13% in 2020 – one of the few major economies with a real offshore investment growth – despite pandemic fears and a complicated financial climate.
Most of the sectors that have seen huge investments are mostly related to technology and IT, services, online casino India such as websites like PureWin, and telecoms. Experts forecast, however, that FDI diversification is not far behind, as the desi consumer market has begun proving its worth in a number of other economic segments.
Considering seven high-visibility indicators across the leading 10 EM markets, India’s relative position has improved both overall and selectively. Indices look at real economic activity (such as manufacturing purchasing managers’ index (PMI) or GDP growth) as much as financial reports (e.g. stock market capitalisation). Composite scores reiterate a picture of the nation’s recovery: India is one of a few select big countries (behind only China and Turkey) that managed to reach a positive GDP growth for Q4 of 2020, while its PMI is trailing just slightly Brazil’s reading.
The trend has left Indian businesses more optimistic about profitability in the coming year. Such optimism is also apparently shared by foreign investors, channelling consistent funding towards Indian stocks in times of global financial uncertainty. Bharat stock market capitalisation levels have brought the rupee to perform better than other EM currencies, as the nation has been confirmed as the biggest recipient of offshore funding since the start of 2021.
Following a largely effective pandemic management in 2020, India has beaten most of its EM counterparts in both vaccinations and testing. Yet, a second wave is currently choking some States and mobility restrictions are already in force. If the situation persists, it could bring down economic activity and investor interest.
While capital outflow does not seem to be on the cards, India’s bond markets are also concerned by rising public debt and inflation. Posting higher inflation numbers than most other EM, the nation has also seen its export competitiveness suffer. Slower export recovery is revealed in February as well (less than 1% growth), even when compared to pandemic-affected monthly figures from a year ago.
Exports are both an immediate concern and a long term challenge. Inevitably, however, they also depend on the Centre’s ability to sustain an efficient vaccination campaign as a background for an economic recovery plan.