The UN Lowers India’s 2024 Growth Forecast: Implications for Industries, Stocks, and Retail Investors
Source and Citation: Originally reported in Economic Times by ET Bureau on January 6th, 2024
Impact on Retail Investors
This downward revision of the 2024 growth outlook may exert some pressure on Indian stocks in the short term. Despite this, the UN’s optimism for 2025 suggests any dip is likely temporary. Retail investors are advised to avoid panic selling, as the 6.2% forecast still signifies healthy growth compared to developed economies.
Moreover, the report underscores positive fundamentals, including strong consumer demand and government capital expenditure. This implies potential for earnings and dividend growth, particularly for companies focused on the domestic market. Investors are encouraged to view market weakness as a buying opportunity, especially in stocks tied to long-term secular growth stories related to rising household consumption, infrastructure development, digitalization, and manufacturing capacity expansion.
Impact on Industries
The UN analysis indicates resilience in both the services and manufacturing sectors, favoring industries such as financials, retail, healthcare, technology, and infrastructure construction. These sectors are expected to benefit from urbanization, increasing disposable incomes, and government strategic initiatives.
However, export-oriented sectors may face challenges in the uncertain global economy. Industries like textiles, metals manufacturing, capital goods, and IT services with high foreign sales exposure could experience growth deceleration. This could put pressure on key players such as Tata Steel, Thermax, and HCL Technologies.
On the flip side, import-competing industries stand to gain from Make in India substitution trends, particularly in electronics, telecom equipment, defense, and pharmaceuticals. Domestic champions like Aurobindo Pharma, Dixon Technologies, and Bharat Electronics are poised for potential advantages. Industries with high employment, such as travel and tourism, education, and housing, also appear set to thrive.
Long Term Benefits & Positives
The UN’s optimistic 6.6% growth projection for 2025 and the underlying positive drivers underscore India’s structural advantage as one of the world’s fastest-growing major economies. With a large domestic market, favorable demographics, rising skill levels, and early-stage industrialization, India is positioned for a multi-year run as a global growth leader.
Sectors tied to consumption, infrastructure, technology adoption, and manufacturing have strong tailwinds due to low penetration levels. Over the next decade, India has the potential to add over $500 billion annually to GDP and $250 billion in new consumption spending as incomes rise. The tech ecosystem’s value could reach $1 trillion by 2030, presenting a generational opportunity for investors to benefit from the economy’s high growth trajectory.
Short Term Benefits & Positives
Despite the slightly lowered 2024 projections, India is expected to remain one of the standout large economies with an annual growth rate above 6%. This stands in contrast to estimates below 2% for the US, Eurozone, and China. Healthy expansions in private spending and continued government capital expenditure on roads, railways, defense, and housing will support growth in the next year.
Moreover, sectors like banking, insurance, autos, retail, and quick-service restaurants catering largely to local demand should be insulated from global shocks. With normal monsoons forecasted, rural consumption may pick up. Additionally, India’s tech sector will continue to benefit from an increased adoption curve across e-commerce, fintech, edtech, and healthtech verticals as digital penetration rises.
Analysis of Companies Impacted by Revised India Growth Forecast
Indian Companies Likely to Gain:
- Reliance Industries Ltd (RELIANCE): As a diversified conglomerate with strong domestic demand across retail, telecom, and petrochemicals, Reliance benefits from continued economic growth. Positive sentiment could boost its stock price.
- HDFC Bank Ltd (HDFCBANK): With a focus on retail banking and mortgage loans, HDFC stands to gain from resilient private consumption and public investment in infrastructure. Improved economic outlook could increase loan growth and raise its valuation.
- Maruti Suzuki India Ltd (MARUTI): Automaker Maruti Suzuki benefits from rising consumer confidence and increased spending on discretionary items like vehicles. A stable economy could increase car sales and boost its stock price.
- Bharti Airtel Ltd (BHARTIARTL): The telecom sector thrives on strong domestic demand and digital adoption. Airtel’s focus on 5G rollout and expanding broadband services positions it well to capitalize on continued economic growth.
- Infosys Ltd (INFY): As a leading IT services provider, Infosys benefits from global technology spending and strong demand for digital solutions. A stable Indian economy could attract foreign investments and increase IT outsourcing, positively impacting Infosys.
Indian Companies Likely to Lose:
- Adani Ports & SEZ Ltd (ADANIPORTS): While infrastructure spending could benefit Adani Ports in the long term, a slower growth rate might initially delay project approvals and investments. This could negatively impact its stock price in the short term.
- InterGlobe Aviation Ltd (INDIGO): The aviation sector is sensitive to economic downturns, as travel demand may decrease. Indigo’s reliance on domestic travel makes it vulnerable to a slower GDP growth rate, potentially impacting its stock price.
- Coal India Ltd (COALINDIA): The transition towards renewable energy and potential government focus on clean energy initiatives could pose a long-term challenge for Coal India, which primarily relies on coal mining. This could negatively impact investor sentiment and its stock price.
- Yes Bank Ltd (YESBANK): The bank is still undergoing a turnaround phase, and a slower economic growth might lead to increased loan defaults and impact its recovery process. This could raise concerns among investors and affect its stock price.
- Tata Motors Ltd (TATAMOTORS): While the commercial vehicle segment might benefit from infrastructure spending, the passenger vehicle segment might face headwinds due to slower consumer spending growth. This could lead to mixed impacts on Tata Motors’ stock price.
Global Companies Likely to Gain:
- Nestlé SA (NESN.SW): As a leader in the consumer staples sector, Nestlé benefits from continued demand for food and beverage products even in slower economic times. Strong domestic demand in India could boost its sales and profits.
- Unilever Plc (ULVR.LN): Similar to Nestlé, Unilever’s focus on essential household products positions it well in a potentially slower economic environment. Increased market share in India could further strengthen its global competitiveness.
- Apple Inc. (AAPL): Apple’s premium products benefit from strong consumer confidence and high disposable income. A stable Indian economy could increase its market penetration and boost iPhone sales.
- Samsung Electronics Co Ltd (005930.KS): As a competitor to Apple in the smartphone market, Samsung could also benefit from increased consumer spending in India. Continued economic growth could lead to higher market share and revenue growth.
- Exxon Mobil Corporation (XOM): Although India’s focus on clean energy might pose a long-term challenge, strong economic growth could lead to increased demand for oil and gas in the short term. Exxon Mobil, as a major energy provider, could benefit from this temporary upsurge.
Global Companies Likely to Lose:
- Luxury goods companies: Companies like LVMH Moët Hennessy Louis Vuitton SE (LVMH.PA) and Kering SA (KER.PA) might face decreased demand for luxury products in a slower economic environment. A weaker India market could impact their sales and profits.
- Commodity exporters: Companies heavily reliant on exports of raw materials like iron ore and coal might face lower demand from India if infrastructure spending slows down. This could negatively impact their stock prices.
- Airlines: Global airlines with significant exposure to the Indian market could face lower passenger traffic growth due to a slower economy. This could impact their revenues and profitability.
- Technology companies with limited India presence: Tech companies heavily reliant on the US and European markets might see limited benefit from a stable Indian economy. This could lead to stagnant or slow growth in their India operations.
- Companies heavily exposed to global economic headwinds: Even with a relatively stable India, companies facing significant challenges in other major markets like China or Europe might still experience difficulties. This could put downward pressure on their global stock prices.