Investors want more of India as it improves infra: Goldman Sach's Sengupta

Foreign investors are showing increased interest in India, as Asia’s third-largest economy ramps up its manufacturing capacity and improves infrastructure, said Santanu Sengupta, Chief India Economist at Goldman Sachs Group Inc.
 

As investors chase markets with digital new economy assets, India has consistently attracted annual foreign direct investments of $50 billion to $55 billion, even in the pandemic, Sengupta said in an interview with Bloomberg Television’s Haslinda Amin and Rishaad Salamat. 

Government incentives for companies that expand their manufacturing base in India are a big draw, he said. “There is clearly a lot of interest from foreign institutional investors, especially from the foreign direct investment side, to invest in India.”

India is trying to woo investors as global manufacturing firms, especially in the technology sector, look to diversify away from China. India and Vietnam are expected to corner a large share of business, especially in electronics.

“The window is likely going to be largest in the next several years,” Sengupta said in a note released last week. “If India is able to capitalize on this opportunity, it will be able to attract a large share of global inbound manufacturing FDI.”

More broadly, Sengupta said India’s economy is in decent shape. He expects gross domestic product for the July-September quarter, which is due today, to come in at 6.3%. With inflation still high, the Reserve Bank of India may increase the policy rate by half a point next week and another 35 basis points in February, he said. 

Inflation for core goods may reach its apex in the coming quarters, but services inflation could stay sticky for longer, Sengupta said. The current account deficit will likely remain elevated at 3%-3.5% of gross domestic product, even as a peaking dollar gives the central bank “some freedom to play with a lower level of reserves as external balances pressure will be more manageable.”

Manufacturers have strengthened their balance sheets by shedding debt, he said, and Indian banks are doing well, helping to buffer the country from external financial shocks. However, a longer US Federal Reserve interest rate hike cycle, and spikes in oil prices when China fully opens its economy, pose risks for 2023, Sengupta said.