GDP & Demographic as a One-Two Punch
In its last meeting on June 2, aside from cutting rates, the Reserve Bank of India also revised its GDP growth outlook from 7.8% to 7.6%.4 Though a downward revision, 7.6% would still not only well surpass China’s GDP growth rate but would in all likelihood make India the world’s fastest-growing economy. A factor that plays a critical role in this rockstar growth is India’s demographic. India is the world’s largest democracy and home to 1.25 bilion people, with a vast majority (over 65%) below the age of 35.5 With one of the world’s largest pools of skilled labor, India’s labor force grows by 1.4% to 1.6% annually.6
RBI as an Equity Performance Catalyst?
One of the bottom lines when discussing India is that there is a lot of potential, but it is very difficult to know when that potential will translate into equities. One thing to note: the RBI has lowered interest rates three consecutive times. We’ve mentioned this analysis once before.
WisdomTree India Earnings Index Reacting Positively to Rate Cuts
While past behavior can never predict the future with certainty, it is worth noting that:
When we last referenced these data points, what we didn’t have were the most recent rate cuts, occuring from January 2015 to the present. While we can never know for sure, it’s interesting to consider this action as a potential key through which some of India’s potential may flow through to equities.
1Source: Bloomberg, with data measured 6/27/14–6/26/15 for Brent crude oil.
2Source: “Narendra Modi govt unveils its first trade policy, targets doubling of exports at $900 bn,” The Financial Express, 4/1/15.
3Source: Anupama Airy & Gaurav Choudhury, “Oil Price Slide Set to Bring Down Subsidy Bill,” Hindustan Times, 1/21/15.
4Source: “RBI Lowers GDP Growth Forecast to 7.6% for FY16,” The Economic Times, 6/2/15.
5Source: Priya Virmani, “Note to India’s Leaders: Your 150m Young People Are Calling for Change,” The Guardian, 4/8/14.
6Source: Planning Commission Reports on Labour & Employment, Economica India Info-Services, 2002.
Important Risks Related to this Article
Investments in emerging, offshore or frontier markets are generally less liquid and less efficient than investments in developed markets and are subject to additional risks, such as risks of adverse governmental regulation and intervention or political developments. Investments focused in India increase the impact of events and developments associated with the region, which can adversely affect performance.