India's stable macro-economic conditions, backed by rapid urbanisation, growing middle-class and youth population, rising income levels, digitalisation, a start-up ecosystem, and high-tech exports, are positioning it as an ideal investment destination for the next decade, said a report by HSBC Global, a private banking and wealth management company.
"We expect India's growth rate could rise to 7.5 per cent per year over the next decade," the report says, adding that investments in physical infrastructure and stable corporate balance sheets will spur India's economic output and the corporate earnings in the coming years.
The Digitalisation of the Indian Economy
India's significant rise in digital transactions has formalised the digitalisation of its economy. In 2022 alone, it processed 74 billion digital transactions worth $111.6 billion, surpassing the combined volume of the US, the UK, Germany, and France.
The report says this interconnected network of digital systems, called the "India Stack," empowers private companies to develop software integrated with government services, providing consumers access to a wide range of offerings, from welfare payments to loan applications.
The India Stack's seamless linkage has opened up the digital marketplace to the masses and bolstered India's tax-to-GDP ratio by curbing tax evasion. India's investment prospects are evident from the strong interest shown by foreign institutional investors (FIIs), which invested a whopping $5 billion in May 2023 alone.
In June, a Motilal Oswal Financial Services report said the Indian stock market saw a 3 per cent rise in May 2023 while global markets declined. The Nifty index recorded a third consecutive month of gains, reaching 18,534, nearing its all-time high.
Sectors such as automobiles, real estate, consumer goods, technology, and telecom performed well, with gains from 4 per cent to 8 per cent. The Morgan Stanley Capital International (MSCI) India index outperformed the MSCI Emerging Markets (EM) index by 7 per cent in the past year and 173 per cent over the past decade.
Risks and Path Ahead
While India's growth story is promising, several risks still exist, such as restarting private capital expenditure, enhancing educational standards and addressing funding challenges.
"Tighter liquidity conditions may therefore pose a challenge to finding funding. Finding patient capital for good business ideas will be vital for the success of India's growth ambitions," the report said.