Foreign investors remain bullish about Indian market despite a 23% shrink in the GDP

Investors know the science of money

The 23% shrink in GDP was a hot debate pursued by the armchair economists of the country as a parameter to show that the republic was going into recession or for a more exaggerated effect—into the ICU. However, a report published by Reuters paints a different picture where the foreign investors, instead of being sensationalized by the scare-mongering news of GDP falling, are betting on the Indian economy to bounce back.

The report states that Indian companies have raised a record $31 billion in equity capital in the first six months of the year 2020 alone. Banks have been the most active issuers, raising $13.68 billion, followed by the energy and power sector with $7.05 billion, and consumer products with $3.41 billion.

The numbers are indicative of India’s preparedness for the expected uncertainty wave in the economy, as the nation’s market acknowledges the ‘new normal’. Part of it is a bet that Indian equities will play catch-up after trailing the region’s benchmark so far in 2020

More importantly, the record raising comes despite India’s economy contracting 23.9% in the June-quarter, year on year.

The success story of Reliance

Citing the success story of Mukesh Ambani led Reliance as an example, the report mentioned that Reliance Industries had raised a whopping $7-billion in June and was the country’s largest leap.

Reliance Jio signed its first foreign investment with Facebook on April 23, 2020. The US-based social media giant pooled 6 billion dollars in Jio for 9.9 percent stakes, at a valuation of around 60 billion dollars for Reliance’s telecom and e-commerce venture.

Since the initial investment from Facebook, Jio has till now bagged four investment deals from various American equity investment firms. Silver lake, one of the largest tech investment firms in the world, picked up a 1.15 percent stake while Vista equity, General Atlantic, and KKR picked up 2.23, 1.34, and 2.23 percent respectively.

Fundamentals of the economy intact

The economy of India and its fundamentals are strong and it could be seen as the reason the Dalal Street did not see any bloodbath when the figures were announced last week.  The agriculture sector is expected to lead into a good yield year being aided by plentiful summer rains, which is expected to pay dividends later this year as the lockdown and its effect wears down on the country.

The manufacturing sector of the country had come to a screeching halt and it was natural that the numbers would have taken a beating.  Between April to June, the country was locked down with stringent policies in place and therefore, very little economic activity too place. Except for the essential items, the factories, as well as shops, were closed, and hence, neither the production nor the consumption took place.

Japan set to bring Companies to India

Reported by TFI, Japan is all set to provide incentives in the form of subsidies to all companies wanting to shift base out of China. Turning its eyes to South Asia and ASEAN, the Japanese government has now also included India to the list of nations to which Japanese companies can shift their operations to avail this incentive.

Reported by TFI earlier, the Japanese government had earmarked close to US $2.2 billion to help its manufacturers shift production out of China.

USA’s confidence in India emerging as a supply-chain leader

The foreign investors and their confidence stems from the fact that the USA’s Secretary of State Mike Pompeo during one of his addresses had asserted that New Delhi had a golden chance to attract global supply chains away from China and reduce its reliance on Chinese companies in areas like telecommunications, medical supplies, and others.

The state of Uttar Pradesh already has got itself a German footwear company to drop its anchor in the state. Taiwanese company Foxconn is planning to invest $1 billion in India and set up another plant in South India. Foxconn assembles iPhone for global tech behemoth Apple.

As interpreted by economic pundits Apple is quietly and gradually looking to a move its production out of China. The trade war between America and China is expected to benefit the Indian market substantially.

Global apparel companies like Marc O’ Polo and Carter have also hinted that they are looking for new pastures. The two companies have taken the tenders from its Chinese vendors and given it away to Indian counterparts.

Trilateralisation of the global supply chain

India, Japan and Australia have already initiated discussions on launching a trilateral Supply Chain Resilience Initiative (SCRI) to reduce China’s foothold in the global supply chain.

In the backdrop of China’s aggressive political and military posturing, India, Japan and Australia are jointly countering the Chinese challenge as the troika has started deliberations to launch a trilateral Supply Chain Resilience Initiative (SCRI) to reduce the dependency on China. The initiative was first mooted by Japan and is now taking shape.

The pumping of the money in the market, the Stock market not showing any signs of volatility, and the increase in consumption—as seen by the growth in sales of two-wheelers and four-wheelers in the auto sector is an indicator that the economy is indeed getting back on track. While the armchair economists continue to pander with their agendas, the investors unperturbed by their pessimism continue to punt on India’s growth story.

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