An Oasis of optimism for India in 2024

Even as two years of Covid followed by nearly two years of geopolitical strife have marred the global landscape, India stands out as an oasis of it’s an excellent time to gaze into the 2024 crystal ball. There are four dominant themes:

Demand: A young and aspirational labour force will drive domestic demand and support GDP growth, offsetting tepid global demand for exports. This trend should remain entrenched not just in 2024 but over the medium term. But two caveats:

Inflation and inflationary expectations must remain well anchored, which RBI is focused on.

The evolving economy must organically create adequate jobs to employ new entrants into the burgeoning labour force gainfully. And, will India become rich before it gets old?

Derisking & deleveraging: The strong consumer demand has been a key driver for bank credit, which expanded by a massive 18% YoY in October 2023 and accounted for nearly two- thirds of incremental credit flow in the trailing 12 months.

With this breakneck credit growth expectedly expanding leverage at the household level, the recent regulatory actions to tighten the credit flow to these sectors were unsurprising. The timely oversight is positive from the systemic risk point of view, and would promote sustainable growth and avoid asset quality issues in future.

The corporate sector is also on a deleveraging trend amid rising household leverage. The financial sector is well positioned to support the domestic funding requirements as the profitability and capital position of the banks is the best in over a decade.

Gol has enhanced budgetary allocations across key ministries, notably recent years. This has also helped crowd in private sector investments as visible in the order book position and capex plans of major players. In addition to the government-led capex, encouraging signals are emerging regarding private capex.

Unlike the previous cycle, the nature of capex is changing in the current cycle, with significant investments anticipated in cleaner industries. This would be an excellent way to meet Indi’s commitment towards climate goals while supporting the momentum of economic expansion.

Democracy: The general election is in 2024. Capex activity may moderate a bit during the model code of conduct and election period. The pace of capital spending should pick up after that.

The elections will undoubtedly dominate the first half of 2024. Amid healthy domestic demand, a deleveraged private sector should pick up pace of capex in the second half of 2024.