A slowing economy hasn’t dimmed India’s allure at Davos

This report is from this week’s CNBC’s “Inside India” newsletter which brings you timely, insightful news and market commentary on the emerging powerhouse and the big businesses behind its meteoric rise. Like what you see? You can subscribe here.

Seven years ago in Davos, Indian prime minister Narendra Modi spoke of India’s ambitions to become a $5 trillion economy by 2025.

“The people and youth of India are now ready to contribute to the creation of an economy of $5 trillion by 2025,” he outlined in his address at the 2018 World Economic Forum (WEF).

“Not only this, when innovation and entrepreneurship … help [individuals] to transform from job seeker to job giver, then the number of avenues that will be opened up for their country and your business can only be imagined,” Modi added.

It’s fair to say that meeting that goal has proven to be tough.

India’s economy is projected to be around $4.27 trillion according to the International Monetary Fund this year, $0.73 trillion short of Modi’s target.

Its slowing economy has raised questions on the country’s lofty growth targets. Market watchers argue that India is now in the midst of a cyclical slowdown.

What is interesting though is that the India story – and its growth potential – continue to grab the attention of investors in India, Davos and beyond.

India is among the top five territories where global CEOs polled by consultancy firm PwC are looking to invest in over the next 12 months. The other territories cracking the top 5 among the 4,700 CEOs polled across 109 countries, were the U.S., U.K., Germany and mainland China.

Optimism on India has spilled over in the ongoing discussions in Davos.

Speaking to CNBC at the sidelines of this year’s World Economic Forum, Mubadala Investment Company’s managing director and group CEO Khaldoon Al Mubarak described India as a “very, very interesting country (and) very interesting market.”

Among the metrics that stand out to him on India’s potential is its large, yet young demographic. Around 480 million Indians are below the age of 18 – that is larger than the population of the U.S., the combined population of Europe, the number of people in the Middle East as well South America’s population below the age of 18, Mubarak said.

“We’ve been investing in India … for years, and we continue to work on building our portfolio in India and really getting into that wave that’s started already,” he said.

This cycle, he added, “will continue, in my view, going forward.”

Mubadala’s investments in India include the Tata Group-owned Tata Power Renewable Energy and Reliance Industries-backed technology giant Jio Platforms.

Prosus, is another investment company looking to cash in on India’s growth potential, especially the country’s technology industry.

“You saw the impact of technology in India … and they are saying ‘we are ready for the next step’,” the company’s CEO Fabricio Bloisi told CNBC at the sidelines of the summit.

“Prosus is ready to invest much, much more India. We have invested like $8 billion there over the last few years and we will invest much more,” he added.

Indian startups Prosus has invested in include food delivery firm Swiggy, edtech firm BYJU’s, agritech player Dehaat and e-commerce platform Meesho.

Going big on tech

The interest in India – particularly the opportunities in its tech and startup space – is in line with the government’s wider focus on developing the sector.

Among the key priorities of India’s delegation to Davos this year was to deepen its foothold in the semiconductor industry by way of government incentives and targets.

This includes exploring the development of its own Graphics Processing Unit (GPU) in the next three to five years, Ashwini Vaishnaw, minister of railways, information technology and information and broadcasting told CNBC-TV18 at the sidelines of the WEF meeting.

Other projects he revealed include India’s plans to develop 25 indigenous chipsets that are designed and fabricated in the country. It is looking forward to rolling out the first chip by September and the first fab by 2026.

Vaishnaw also outlined the government’s goal of providing underlying compute power with 1,000 GPUs, especially for the benefit of start-ups that lack access.

This is part of the government’s focus this year to foster talent and leverage data to create robust datasets to train AI models, he added.

Vaishnaw had led what is reportedly India’s largest delegation to Davos this year, featuring representatives from eight states: Andhra Pradesh, Telangana, Karnataka, Kerala, Tamil Nadu, Maharashtra, West Bengal and Uttar Pradesh, with each vying for investments for their upcoming initiatives.

For instance, Andhra Pradesh’s Chief Minister Chandrababu Naidu reportedly showcased the state’s business-friendly policies in hopes of wooing multinationals like Unilever, PepsiCo, Google Cloud and AstraZeneca.

Its neighbor Telangana, meanwhile, exhibited its expertise in electric vehicles, pharmaceuticals, and semiconductors. Elsewhere, Maharashtra reportedly presented itself as India’s industrial powerhouse.

The hefty presence of Indian officials at Davos is likely an acknowledgement of the fact that companies, particularly those that have only been around for a few years, need more capital than they can raise domestically.

Foreign investments into the country are “drying up” due to economic policy uncertainty and geopolitical risks, according to Dhiraj Nim, a foreign exchange strategist and economist at ANZ Bank.

One way forward is for the Indian government to “foster greater confidence by reducing political and regulatory costs, improving the ease of doing business in India,” he suggested.

“There is a lot India can do even if global variables are beyond control. India has plans to become a developed nation by 2047, so we would need much stronger growth than the 6 – 7% we are getting used to. And growth will have to be realized by realizing more investments and also beefing up labor force productivity and technological capabilities,” Nim added.

The issue of how India plans to continue growing at a sustainable pace, while providing jobs and increasing productivity, is top of mind for the Indian government. In Davos, India’s Railways, Electronics and Information Broadcasting Minister Mr Ashwini Vaishnaw sat down to discuss with a group of global executives, investors and Indian entrepreneurs. The breakfast organized by Brunswick Group and CNBC on the sidelines of the World Economic Forum, allowed executives and investors to ask the Minister questions and discuss the investing environment in India. 

India might lower its disinvestment target for FY25. The country’s government is looking to cut its disinvestment and asset monetization goals by 40% — or to less than 300 billion rupees ($3.47 billion) from 500 billion rupees — for the financial year 2024 to 2025, The Economic Times reported, citing people familiar with the discussion. Regulatory obstacles and valuation difficulties have proven to be roadblocks, but Prime Minister Narendra Modi’s administration has still sold more stake in state-run firms than previous governments.

The Quad convened and reaffirmed their partnership. Foreign ministers of the group, comprising U.S., Australia, India and Japan, met on Tuesday and emphasized the importance of preserving a free Indo-Pacific, according to a joint statement issued after the talks in Washington. The meeting, hosted by U.S. Secretary of State Marco Rubio on his first day in the job, was meant to indicate that countering China was a top priority for the Trump administration, analysts said.

Oil prices could rise in India. The U.S. imposed new sanctions on Russian oil on Jan. 10. As India imports around 40% of its oil from Russia, according to trade intelligence firm Kpler, New Delhi could be facing a sudden supply crunch. Supply disruptions to India could be as high as 500,000 barrels per day, Rystad Energy’s senior analyst Viktor Kurilov told CNBC. To mitigate the potential oil shock, Indian importers are looking to import oil from suppliers in the Middle East.

Indian stocks traded mixed this week. The Nifty 50 index was down 0.03% this week and closed at 23,205.35 points.

The benchmark 10-year Indian government bond yield was flat at 6.78%

On CNBC TV this week, Kumar Rakesh, BNP Paribas’ India analyst, expressed optimism on India’s auto industry. India’s exports of passenger vehicles and motorcycles have been growing at a reasonably strong rate in recent years, especially in the African, Latin American, Middle East and Southeast Asian markets, Rakesh said. Moreover, Indian automakers have been able to enjoy greater profitability because their cost of production domestically is one of the lowest in the world.

Meanwhile, Jose Rasco, HSBC Global Private Banking and Wealth Management Americas CIO, acknowledged that India’s market isn’t cheap, but that’s because investors are “paying for quality.” Some features that attract investors to India are its young and diversified economy, a good legal system and increasing productivity in recent years.

Central bank meetings and Big Tech earnings are in focus the upcoming week. Meanwhile, Denta Water and Infra Solutions, a water management and infrastructure company, lists on the Indian market.

January 24: India HSBC PMI Flash for January, Bank of Japan meeting, Japan inflation rate for December, U.K. S&P PMI flash for January

January 29: U.S. Federal Reserve meeting, Denta Water and Infra Solutions IPO, Meta Platforms, Microsoft and Tesla earnings

January 30: U.S. gross domestic product for fourth quarter, European Central Bank meeting, Apple and Intel earnings