Global shifts make compelling case for a structural bull run in Indian assets, says Standard Chartered Bank’s wealth management office

• India to benefit from structural shifts in global supply chains. Manufacturing sector is likely to create up to 4 mn new jobs.
• India’s tax regime for manufacturing companies continues to be more attractive than all other countries in the region.
• India’s macroeconomic backdrop sets Indian financial market assets up to perform well on a multi-year horizon, says Standard Chartered Bank.

India is set for a structural bull run, as its economy is in the midst of several structural shifts. For starters, India has now entered the league of countries where affluence will only increase and consumption patterns will also change. India’s per capita GDP has more than doubled from $1010 in 2008 to $2600 in FY23. No matter which filter you apply, India shows up as a bright spot amidst all the global turbulence.

The share of corporate profits as a percentage of GDP has recovered to pre-pandemic levels as India’s profit cycle remains the strongest among all its peers. Even with a slower growth rate of economic growth at 6.2% in FY24 (as forecast by most economists), India will do much better than its emerging market peers like Indonesia, Thailand, Brazil, South Korea, Taiwan and even China.

As the rest of the world’s population starts to age, India’s young population is a winner. But the one factor that has most global investment banks taking notice is the shift in global supply chains after the pandemic. According to Standard Chartered’s global wealth management office, a gradual shift to a multi-polar world will benefit India. After the cut in corporate taxes in 2019, India’s tax rate remains most attractive for manufacturing companies compared among its peers in the region.

The report by Standard Chartered says, “In our view, India’s macroeconomic backdrop sets Indian financial market assets up to perform well on a multi-year horizon – what we see to be a structural bull case. A high rate of economic growth, with well-managed inflation and external stability risks. Stable governance, policymaking, and an investment-focused growth trajectory are also expected to be beneficial.”

India’s manufacturing sector could see anywhere between 1-4 million new jobs thanks to the reconfiguration of supply chains. According to analysis done by global investment bank UBS, while no single country can fully replicate China's manufacturing network, Vietnam, India, and certain Southeast Asian nations stand out. India's size and policy reforms position it for low-cost manufacturing. Malaysia excels in semiconductors, while Indonesia and Thailand show promise in the electric vehicle supply chain.

This momentum in manufacturing will also boost economic growth. According to the investment bank, if India continues to benefit from supply chain shifts and reforms, its growth could rise to 6.25-6.75% year-on-year by 2030 under an optimistic scenario and 6.75-7.25% year-on-year under a blue-sky scenario, leading to job creation.

UBS has identified countries that are poised for economic growth on the back of this dynamic shift in the Asian supply chain landscape. Market implications suggest that Indian and Thai equities have absorbed stronger growth expectations, particularly in specific sectors like industrials, materials, and the consumer sector. UBS leverages insights from various experts to emphasize India and Vietnam's potential for growth, manufacturing, and employment improvement, while other Southeast Asian countries exhibit niche strengths in specific industries.

The report identifies opportunities for low-value-added manufacturing relocation, nearshoring momentum driven by geopolitical risks, and a gradual shift "out of China" as prominent trends. Vietnam and India are highlighted as key contenders for manufacturing relocation due to their advantages in low-cost manufacturing, scale, and infrastructure. They are expected to benefit from the changing manufacturing landscape, with other ASEAN countries having specific niche strengths. Labor cost and productivity are crucial factors, with wages being lowest in countries like Indonesia, India, and Vietnam. China's manufacturing productivity improved significantly, while Vietnam and India also made substantial gains.