India’s Economic Momentum: A Deep Dive into Growth Drivers and…

Sarah J · 2025-11-17T14:22:00.000Z

The AI Hedge: India as a Global Beneficiary In the face of recent global market instability, particularly the "meltdown" in "air related stocks" (referring to AI-related plays), India presents a unique market opportunity. While global markets have struggled with this volatility, India could potentially be a beneficiary if the bubble bursts, partly because the country has "absolutely no air play to boast of". Currently, India lacks hyperscaler stocks and significant data center capacity stocks. If the AI bubble bursts, foreign investors seeking growth elsewhere are likely to view India as a prime opportunity. Cyclical Recovery Trumps Pessimism Despite prevailing sentiment that 2023 has been a "terrible year for India" due to factors like Trump’s tariffs, pending US trade deals, China hostility, and middling growth, experts argue that a powerful cyclical recovery is underway. Nikhil Mishra, Chief Economist of Axis Bank and a member of the Prime Minister’s Economic Advisory Council, asserts that the real story of India is the cyclical recovery being driven by the reversal of monetary tightening and the end of hard fiscal tightening. Mishra expects the 12-month forward earnings to start rising within the next year as this economic recovery takes hold. This follows a challenging period where India experienced a 12% cut in earnings—among the worst in large markets—leading to market stagnation while others saw 20% growth. Previously, short-term investors were calling India a "loser" and using it as a "funding chart" (shorting India to invest elsewhere). However, as the roots of economic recovery become visible and convincing (beyond temporary improvements like those seen in October and November), foreigners are anticipated to return. Mishra forecasts this recovery will drive growth above 7%. The Engines of Domestic Growth and Credit The country's financial services industry is poised to be one of the biggest beneficiaries of this anticipated fast-growing economy. According to Jerome Sreedharan, MD and CEO at Piramal Finance, fundamental economic growth—the economy "chugging along at six and a half, seven, seven and a half percent"—is the primary factor that will drive credit growth. Historically, lending in India maintained a mid-teen growth rate (15–15.5% annualized) over a long 50-year period, though the rate has slowed to about 11% in the last decade. The Indian economy is fundamentally driven by two main engines: government spending and personal consumption expenditure . Over the past year, government spending slowed down (starting before the general elections), which meant one engine went soft. This engine has now started "roaring back". While consumption remains "patchy" with some softness in rural India, mid-market India is demonstrating strong performance . Lenders, having been overly cautious following a credit risk jolt in the middle of last year, pulled back significantly, especially in unsecured credit, personal loans, and small business loans, where growth has been negative. This conservative stance is reflected in the current sectoral credit growth, which is running at about 10%—only matching the nominal GDP growth (a 1:1 ratio). Historically, the credit growth to GDP growth ratio has been higher, around 1.25 or 1.3 to 1. The Critical Need for Long-Duration Capital India faces an overall capital deficit, particularly in long tenure or "long duration" capital. This structural issue stems from the fact that Indian capital expenditure is often funded by banks relying on consumer deposits, which typically have a three-year tenure. As Sreedharan notes, "you cannot build a 30 year country with three year deposits". To address this mismatch, the government and regulators have actively sought to attract long-term international capital into the foundational financial services sector. International capital is one of the two main sources of long duration capital that can be unlocked, the other being domestic promoter capital. Recent regulatory approvals indicate that "large ticket, extremely patient international capital" is entering the financial services sector. This excitement is shared by large foreign banks and international investors, including sovereigns and pension capital, who are seeking a presence in Indian lending. Despite the influx of new players, competitive intensity in the sector is not high, and India requires many more financial services providers. This is evidenced by the consolidation of public sector banks, which has reduced the total number of public sector banks from 25 to currently 10 https://www.youtube.com/watch?v=mUWp9P6aUUI

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India’s Economic Momentum: A Deep Dive into Growth Drivers and… | SEINET