The year 2019 is considered to be a year of volatility as the world’s largest democracy is going for general elections that is due in 2019. The political parties are leaving no stone unturned to showcase the achievement of the current government while some of them are busy highlighting the short-comings of the current government.

Amidst this one question that is doing the rounds is of where the economy is headed?

Indian has risen as the fastest developing economy in the world and is presumed to become one of the top three economies of the world in the next two decades backed by its strong democracy and partnerships.

But what is likely to drive the growth?

Market size

India’s GDP is estimated to have grown by 6.6 percent in 2017-18 and is likely to increase by 7.3 percent in 2018-19. During the first half of 2018-19, the GDP (at constant prices of 2011-12) grew by 7.6 percent.

The World Bank stated that the private investments in India are likely to increase at 8.8 percent in fiscal 2019 overtaking the private consumption growth rate of 7.4 percent. This spread is expected to support the growth of India’s gross domestic product (GDP) in fiscal 2019.

The Gross Value Added (GVA) for 2017-18 by three sectors is shown below –

  1. Services: 53.9 percent
  2. Industry: 29.1 percent
  3. Agriculture: 17.1 percent

Moving on to the critical facts about the economy.

Facts about the Indian economy

  1. Country’s foreign exchange reserves were US$ 393.29 billion in the week up to December 21, 2018 (Source: RBI)
    Nikkei India Manufacturing Purchasing Managers’ Index (PMI) is recorded at 53.2 in December 2018. The PMI shows expansion activity in the sector.
  2. Mergers and Acquisitions (M&A) activity at a Pan-India level grew 104.5 percent year-on-year to reach US$ 129.4 billion in 2018.
  3. Investments by Private Equity (PE) and venture capital (VC), in value terms, grew by 35 percent to reach US$ 35.1 billion in value terms in 2018.
  4. India Inc. raised ~US$ 5.52 billion through Initial Public Offers (IPO) until November 2018.
  5. Foreign Direct Investment (FDI) inflows reached US$ 389.60 billion between April 2000 and June 2018. The Maximum contribution for FDI came from the Services Sector (18 per cent), Telecommunications (8 per cent), Computer Software and Hardware (8 per cent), Construction Development (6 per cent), Automobile (5 per cent), Trading (4 per cent), Drugs and Pharmaceuticals (4 per cent), Chemicals (4 per cent), Power (4 per cent), and Construction Activities (3 per cent).
  6. India’s ranking improved by 23 spots over 2017 ranking in the World Bank’s Ease of Doing Business Report. The country is ranked 77 among 190 countries in 2019 edition of the report.
  7. The exports from the country grew by 15.48 percent year-on-year to US$ 351.99 billion between April 2018 and November 2018.
  8. The Income Tax collected reached US$ 35.88 billion between April 2018 and November 2018.
  9. India’s Index of Industrial Production (IIP) improved 5.6 percent year-on-year in April-October 2018.
  10. India’s unemployment rate is estimated at ~3.5 percent in 2018, according to the International Labour Organisation (ILO).
  11. Mutual funds asset base stood at Rs 22.86 trillion (US$ 322.33 billion) at the end of December 2018.

Government initiatives

The government of India has come up with multiple schemes during the past four and a half years. Some of the key initiatives that shall decide the course of future are detailed as under:

Make in India

The Make in India initiative aims to boost the manufacturing sector to improve the purchasing power of an Indian consumer. This improvement shall further stimulate demand and hence spur development and benefit investors.

The government seeks to increase the share of manufacturing sector to 25 percent of the GDP from the current 17 percent.

The initiative focuses on 25 sectors including automobiles, automobile components, aviation, chemicals, Information Technology, pharmaceutical, construction, defence, electrical and electronics, food processing, textiles, ports, leather, media and entertainment, wellness, mining, tourism, railways, renewable energy, biotechnology, power, roads and highways.

Digital India

The initiative focuses on three core components: the creation of digital infrastructure, delivering services digitally and to increase digital literacy.

Start-up India

India has the third largest startup base in the world with over 4,750 technology startups. The country is expected to have 100,000 startups by 2025 that is likely to create employment for 3.25 million people while adding US$ 500 billion in value (Source: Speech of Mr. T V Mohan Das Pai, Manipal Global Education).

Interim Budget 2019-20

The Interim Budget 2019-20 was announced by Mr. Piyush Goyal, Minister, Government of India, in Parliament on February 01, 2019. The budget focuses on supporting the need of farmers and economically less privileged individuals and workers of the unorganized sector. The budget also takes care of the salaried employees while maintaining is focus on the Government of India’s push towards better physical and social infrastructure.

Strategy for new India

The Indian think tank, National Institute for Transforming India (NITI) Aayog, released a strategic document titled ‘Strategy for New India @75’. The report highlights the strategy that shall help India become a US$ 4 trillion economy by FY23.

Agriculture export

The government unveiled the maiden Agriculture Export Policy, 2018 that seeks to double agricultural exports to US$ 60 billion by 2022.

Recapitalization of public sector banks

The Government decided to invest Rs 2.11 trillion in recapitalizing the public sector banks over the next two years.

Long-term outlook

India is likely to be the third-largest consumer economy as its consumption may triple to US$ 4 trillion by 2025, owing to the shift in consumer behavior and expenditure pattern.

The economy is likely to achieve upper-middle income status on the back of digitization, globalization, favorable demographics, and reforms.

Over the long-term, the economy is expected to surpass the United States to become the second largest economy in terms of purchasing power parity (PPP) by the year 2040.

Near-to-medium term outlook

Indian economy is flourishing with rising urbanization, growing the middle-class population, and increasing expenditure from the younger generation. These things along with a business-friendly government have resulted in India becoming the world’s fastest-growing emerging economy.

The emerging markets are challenging developed markets and are rapidly adjusting to the dynamic environment. Also, the government’s interim budget and the noise regarding the second term of Prime Minister Modi shall see rapid execution of reforms. Thus, one can expect India’s growth in fiscal 2020 and fiscal 2021 to be domestic-driven with little support from the global economy.

Following are the sectors that are likely to drive growth in India and looks promising after the elections provided the government continues which has a high probability –

Agriculture and allied sectors

India is expected to achieve the ambitious goal of doubling farm income by 2022. The government of India aims to increase the average income of a farmer household to Rs 2,19,724 (at current price) by 2022-23 from Rs 96,703 in 2015-16.
With the implementation of schemes surrounding the farming and related sectors are likely to increase the farmer’s cash profits in double digit.

Also, government initiatives in areas such as crop insurance, farmer insurance, credit availability, and relief during calamity shall support farmers and their income.

The government’s fertilizer subsidy along with increased investments in agricultural infrastructure such as irrigation facilities, warehousing, and cold storage shall help the agriculture value chain generate better momentum in the next few years.

Lastly, the use of genetically modified crops shall support the yield for the farmers thereby making them self-sufficient. Some of the companies that are worth looking at in the sector include –

  1. United Phosphorous Ltd
  2. PI Industries Ltd
  3. Rallis India Ltd
  4. Mahindra and Mahindra Ltd
  5. Escorts Ltd
  6. Meghmani Organics Ltd
  7. Excel Industries Ltd
  8. GNFC Ltd
  9. Aries Agro Ltd

Consumption Sector

Rural consumption has increased which was led by a combination of growing income and rising aspiration level. There is a rising demand for branded products in rural India, and thus the FMCG market in the region is likely to grow manifold in the years to come. Also, the share of the unorganized market is falling; the organized sector growth is expected to rise with the increased level of brand consciousness.

The government has announced measures that can have positive for low-value consumer durables such as mobile phones, smaller-sized televisions, and entry-level two-wheelers. The Indian appliance and consumer electronics market could see growth in the lower double-digit. The demand is likely to accelerate with rising disposable incomes and easy access to credit. Increasing electrification of rural areas and extensive usability of online sales would also aid growth in demand.

Some of the companies that are worth looking at in the sector include –

  1. Hindustan Unilever Ltd
  2. Marico Ltd
  3. Bata India Ltd
  4. Dabur India Ltd
  5. Jyothy Laboratories Ltd
  6. Godrej Consumer Products Ltd
  7. TTK Prestige Ltd
  8. Varun Beverages Ld
  9. Tata Global Beverages Ltd
  10. United Breweries Ltd
  11. Britannia India Ltd
  12. Radico Khaitan Ltd

Financial Services Sector

Reaching every nook and corner of a country that is as vast as India is nearly impossible.

However, the government with an aim, to provide financial inclusion launched Jan Dhan Yojana and few other schemes to ensure financial services reach the last mile. This move has compelled the banks to adopt the technological way to reach the under-banked.

In India, with over a billion people operating mobile that is connected to the internet, the growth opportunity for financial institutions is humungous. Also, the internet and mobile phones have now changed the way people are accessing credit, and mutual funds. Thus, there is a tremendous growth opportunity for the financial services sector that is considered to be the enabler of the Indian economy.

Some of the companies that are worth looking at in the sector include –

  1. Yes Bank Ltd
  2. HDFC AMC Ltd
  3. Bandhan Bank Ltd
  4. HDFC Bank Ltd
  5. HDFC Ltd

Technology – The backbone for delivery

Also known as the backbone of delivery, India is now home to the second largest community of mobile users.
Technology has grown leaps and bounds in India and has connected people across the length and breadth of the nation. The connectivity has a direct bearing on sectors such as education, healthcare, financial services and many more.

Some of the companies that are worth looking at in the sector include –

  1. Sonata Software Ltd
  2. Tata Consultancy Services Ltd
  3. Cyient Ltd
  4. Quick Heal Technologies Ltd
  5. Tata Elxi Ltd
  6. Kellton Tech Solution Ltd
  7. Persistent Systems Ltd
  8. Nucleus Software Ltd
  9. Info Edge (India) Ltd

Automobile – Affordable acceleration

Leading global automobile players are entering India and setting up production facilities to tap one of the fastest growing economies of the world.

Also, Indian players such as Eicher Motors (Eicher Motors own Royal Enfield bike that has been growing in terms of sales), Maruti Suzuki India Ltd, Tata Motors Ltd, etc. are unveiling new models, facelift versions, etc. to tap the demand from the consumers.

Rising disposable income in the hands of individuals has resulted in shifting preference towards the four-wheeler segment. The growth of the automobile sector shall also translate the growth of automobile component sector.

Some of the companies that are worth looking at in the sector include –

  1. Maruti Suzuki India Ltd
  2. Eicher Motors Ltd
  3. Automotive Axles Ltd
  4. Munjal Showa Ltd
  5. Motherson Sumi Systems Ltd
  6. Endurance Technologies Ltd
  7. Jamna Auto Industries Ltd

Healthcare

Healthcare is a segment that provides citizen care. India is a country that is dominated by the young population of below 40 years. Also, the country is likely to witness rapid growth in the population of senior citizens (aged above 60 years). This trend has prompted the government to launch Modicare that is a healthcare programme for its citizens.

Also, the country is known for having the lowest doctor density, but the same has started to see some improvement at a swift pace.

Some of the companies that are worth looking at in the sector include –

  1. Ajanta Pharma Ltd
  2. Lupin Ltd
  3. Piramal Enterprises Ltd
  4. Aurobindo Pharma Ltd
  5. Natco Pharma Ltd

Risks to the outlook

The global economy is weaker with growth forecast tilted downwards. Also, the economy faces the risk of monsoon turning adverse with the international weather forecast predicting an El Niño weather condition.

Lastly, if the elections yield a fractured mandate, the pace of execution of reforms in the sectors mentioned above could be different, and thus the outlook could change accordingly.

Disclaimer: the views expressed here are of the author and do not reflect those of Groww.