India growth has happened at an unprecedented rate even when the world is facing an economic slowdown amid high central bank rates to control inflation and the Russia-Ukraine war. “With its population set to surpass China’s in 2023 and growth set to outpace rivals for the foreseeable future, the country’s economic ambitions are increasingly attracting long-term investors’ attention,” writes Stéphane Monier, Chief Investment Officer, Lombard Odier Private Bank.

India will be the beneficiary of countries trying to shift their attention away from China amid geopolitical tensions and supply chain constraints. India has maintained a near-about GDP growth of 7% in 2022 and Lombard Odier predicts, “growth to slow to 6%, but that modest change is unlikely to be sharp or lasting,” in 2023. Monier also expects the rate hikes of the Reserve Bank of India to pause post a 25bps hike in early 2023. The easing of monetary policy or the dovish nature can help India “normalising global demand and stabilising commodity prices” and thus, “bring domestic consumer inflation below its 6% threshold,” says Monier.

Bharatiya Janata Party (BJP) is set to win the 2024 general elections and come back to power with Narendra Modi serving for another term, expects Lombard Odier. This means that the country will have a stable government with economic policies that may help it achieve its economic targets.

In this scenario, India may pull in money from foreign investors as investing in developing economies looks lucrative on all fronts. With this India growth pace and outlook, the country is set to become the third-largest economy by 2023 taking over Germany and Japan. This means “India’s bonds may see rising levels of foreign interest. Inclusion in major bond indexes would boost their attraction further,” according to Lombard Odier.

Indian currency is also set to trade at 80-84 relative to US Dollar in 2023, as per Monier. However, he adds, “Indian equities’ valuations remain high for now, and so look less appealing.”

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