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The economic return of the Indian elephant

What drove India’s performance in 2019 and its outlook for 2020

Investors are increasingly seeing India as a high potential growth market, but it under-performed expectations in 2019. The country continues to see positive structural and economic reforms, leading to the question, what happened and does this change India’s prospects?

Read the full paper here.

Three drivers of negative performance in 2019

Global markets were generally affected by a range of events across 2019, including the US/China trade war, slowing growth and fear of recession. Beyond this, there were three key drivers behind India’s negative performance.

1. Non-banking financial companies (NBFC) crisis

In the last quarter of 2018, an NBFC company called Infrastructure Leasing & Finance Services (IL &FS) defaulted on multiple loans and covenants across India. As a result, banks and mutual funds stopped lending to NBFCs which triggered a liquidity and confidence issue across India which dragged on performance, particularly in early 2019.

2. Government election

Though Narendra Modi returned to power in the government election, the focus was on re-election rather than continued structural economic growth in the lead-up to polls.

3. Kashmir

Hostilities between India and Pakistan escalated, with the volatility also felt in the economy.

These drivers in turn affected manufacturing, core-sector production and consumer and capital goods production. India’s automobile and real estate sectors were also hard-hit.

India’s future prospects

The Indian government and Reserve Bank of India (RBI) implemented two key measures to resolve the problems of 2019. These included:

> Five rate cuts by the RBI to 5.15%.

> A corporate tax cut from 30% to 22%.

India’s outlook for 2020 is further supported by factors such as low inflation, ongoing reforms and political stability. As such, the prospects remain positive and it is anticipated to continue to benefit from overarching themes across Asia such as the growth of the middle-class.

You can access India through the ETFS Reliance India Nifty 50 ETF (ASX Code: NDIA).

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