Can India achieve the same level of growth as China?

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The big story

Indian growth expectations for this year have been adjusted by the big banks of Wall Street.

The three banks, Bank of America, Goldman Sachs, and Deutsche Bank, have all considered the possibility that India's economic growth may be lower than anticipated. India's GDP slowed to a 15-month low of 6.7% year-on-year in the second quarter.

India's central bank maintained its positive outlook on the country's growth rate, forecasting a 7.2% increase, despite earlier dismissing negativity earlier this month.

The Reserve Bank of India governor stated that there were no downside risks to the prediction when asked by CNBC's Tanvir Gill.

In an exclusive interview for CNBC, Shaktikanta Das stated that we are quite confident about the 7.2% growth which we have projected in our current year's assessment.

"The growth momentum in India is very strong and is mainly due to structural factors, rather than seasonal or one-off factors."

Consumer spending, which accounts for approximately 60% of GDP, increased from 4% to 7.4% in the second quarter, while construction expanded at 10.5%. Despite a delayed monsoon, the agriculture sector grew by 2.2% and has since recovered.

The governor stated that the only factor that slowed down the economy during the election season was government expenditure. He predicted that in the future, the central and state governments would spend the budgeted amounts, allowing them to catch up.

Das remained confident in India's near-term growth prospects and was optimistic about the medium-term trajectory, predicting an annual GDP expansion of more than 7.5%.

""On a conservative basis, it is between 7.5% and 8%," Das stated."

The governor was less optimistic about India's growth rate competing with China's achievements over the past two decades.

Narendra Modi's vision to transform India into a developed economy by 2047, which is just 23 years away and marks India's centennial as an independent nation, is politically significant due to the growth rate.

Since the 1960s, China has grown by more than 10% annually for over 22 years, while India has never achieved that level of growth.

Governor Das stated that a growth rate of 7.5% to 8% would not pose sustainability concerns, as it can be sustainable. However, if considering 10-plus growth, Governor Das emphasized the need to do more research before making a decision.

The central bank's optimistic outlook for the near future is driven by investors and businesses investing in India to capitalize on its growth potential or to diversify from China.

This week, China's central bank, President Xi Jinping and other top leaders announced plans to revitalize the country's economy and entice investment.

David Tepper, a billionaire hedge fund manager at Appaloosa Management, revealed that he had made an unlimited bet on China without any hedges, purchasing nearly "everything" just hours after the announcements.

Barclays' strategists have become optimistic about China's economic prospects in the near future.

According to strategist Kaanhari Singh, China stocks are poised for a potential second major breakout this year due to renewed stimulus hope, a global laggards rally, and marginal sentiment improvement, despite their low positioning.

"We would favor China shares over Indian equities into October."

To achieve the same growth rate as China, India may need to act quickly.

Need to know

India has decided not to join the Regional Comprehensive Economic Partnership (RCEP) because it did not align with the guiding principles of ASEAN and is not in the country's interest to enter into a free trade agreement with China. The RCEP was signed in 2020 by 15 Asia-Pacific countries that make up 30% of global GDP. Watch the full interview with India's Minister of Commerce and Industry Piyush Goyal here.

Physics Wallah, an Indian startup, has achieved a $2.8 billion valuation after raising $210 million in funding from venture capital firms, including Hornbill Capital, Lightspeed Venture Partners, GSV, and WestBridge, on Friday. This valuation is significantly higher than its previous valuation of $1.1 billion. Physics Wallah provides free and affordable courses for examinations in India, with an average cost of less than $50.

The Indian Prime Minister aims to transform the country's electronics sector into a $500 billion industry by 2030, with the semiconductor industry playing a crucial role. However, industry experts are uncertain about the feasibility of this goal. They agree, however, that India requires external assistance to kickstart this venture.

The former head of State Bank of India, Arundhati Bhattacharya, stated that India's banking era is changing. As the country's wealth increases, a younger generation of investors is turning to low-risk assets instead of saving their money in banks. Bhattacharya advised that treasuries need to improve their management of assets and liabilities.

Dimon warns that any "China +1" transition will take years due to the complexities of relocating operations. He predicts it could take 5, 10, or even 15 years before any such transition takes place.

Investors should be cautious when investing in India's booming economy and stock market, as focusing solely on these factors may overlook potential risks, advises Amit Dixit, head of Asia at Blackstone Private Equity. "It's important to invest in specific micro-sectors," Dixit emphasizes.

What happened in the markets?

The Indian stock market is experiencing a surge, with the index now surpassing 26,000 points and setting a new record high. Despite a 1.6% increase in the index for the week, it has already gained 20.64% this year.

This week, the Indian government bond yield decreased to 6.71%, down from 6.75% the previous week.

JPMorgan's chief India economist, Sajjid Chinoy, stated on Biz Focus Hub that India's current account deficit has been well-behaved and benign. The bank predicts India's deficit this year to be approximately 1.2% of GDP, which is sustainable. Additionally, India's foreign exchange reserves have given it some monetary policy independence.

Motilal Oswal Financial Services' chairman and co-founder, Raamdeo Agrawal, stated that India's investment landscape is experiencing a bull run that is "in full swing." He predicted that the Nifty 50 will reach 50,000 points by 2030.

What's happening next week?

On Monday, Manba Finance, a non-banking finance company that provides loans, will be listed on the Indian stock market. On Thursday, KRN Heat Exchanger and Refrigeration, a manufacturer of heating and refrigeration components, will also join the Indian stock market.

September 27: U.S. personal consumptions expenditure index reading

September 30: Manba Finance IPO

October 3: KRN Heat Exchanger and Refrigeration IPO

October 4: U.S. nonfarm payrolls for September, India Composite PMI