India's investment outlook: 2023 and beyond

Thomas Mucha, Geopolitical Strategist
Tushar Poddar, PhD, Macro Strategist
2022-12-15T12:00:00-05:00  | S1:E19  | 32:06

The views expressed are those of the speaker(s) and are subject to change. Other teams may hold different views and make different investment decisions. For professional/institutional investors only. Your capital may be at risk.

Episode notes

India is balancing immense growth opportunities — like digital transformation, domestic manufacturing, and industry consolidation — with complicated geopolitical, climate, and other risks. Macro Strategist Tushar Poddar joins host Thomas Mucha to explore the key macro and economic factors driving one of the world's most compelling investment markets.

1:55 - India’s economic growth drivers

5:30 - India’s political stability 

9:15  -Market outlook and industry consolidation 

13:05 - Rise of India’s manufacturing 

16:18 - Critical geopolitical player 

22:30 - Climate change in India 

25:35 - Tushar’s career path and research process

28:20 - Book recommendations and personal observations


TUSHAR PODDAR: there’s been a huge surge of investments in the private space, which has led to an acceleration in the number of unicorns, or businesses which are valued at over a billion dollars. There is, of course, some steam that’s been coming off that sector because of what’s happening to tech globally, but I do think that the medium- and long-term prospects are still very exciting in that space.



THOMAS MUCHA:  According to the UN, India is set to pass China as the world’s most populous nation sometime in 2023, with more than 1.4 billion people. And Prime Minister Narendra Modi has been outspoken in his ambition to make India a developed nation sometime over the next 25 years. Meanwhile, the US and Europe have been seeking to strengthen ties with New Delhi as great-power competition with China heats up amid Russia’s invasion of Ukraine. Then, of course, there are climate concerns, the lingering fallout over COVID, and a host of other issues that make India one of the most interesting places in the world from an investment and many other perspectives. Now, to help sort this all out I’m joined today by my colleague Tushar Poddar, a macro strategist based in our London office, and who leads Wellington’s efforts in thematic analysis and sector-based macro research for India, as well as a number of ASEAN countries. Tushar, welcome to WellSaid.

TUSHAR PODDAR:Thank you very much, Thomas. Very excited to be here.

THOMAS: Let’s start, Tushar, with India’s macro and domestic political situation. Now, India’s year-over-year growth has been slowing a bit. It’s still a relatively brisk seven percent. And, as you noted recently in a blog post here at Wellington, India has deleveraged its debt and strengthened its balance sheet. So, what’s behind the momentum?

TUSHAR:   I think India’s coming out of a multiyear period of low growth, which was hobbled by very high debt ratios, bank balance sheets which were overextended, and corporate balance sheets, which were also, after the boom between 2003 and ’12, needed to de-lever. And India’s gone through that process now. The balance sheets are much stronger. So, credit growth remains quite strong, in the mid-teens. Corporate profitability is strong. And households are spending. They’re spending on consumer durables and staples. So, there is a lot of catch-up and pent-up demand that’s coming out because of these. I also think that there has been a change in the real estate cycle. India went through several years of a downturn in the real estate sector, and, as we know, that that’s a key driver of economic growth and jobs. And that has turned around over the last two years, especially during the pandemic. Because of easier liquidity, low interest rates, greater affordability, the real estate cycle is now more positive and that’s leading to greater investment. It’s leading to greater jobs. And it is leading to a virtuous cycle. And finally, I think the export cycle is also very strong, driven by India’s strength in IT services, which is also contributing to overall GDP growth.

THOMAS MUCHA:  So, you paint a pretty positive picture here, Tushar, and yet it’s a very challenging global macro backdrop. To your thinking, what are the speed bumps here and what’s holding India back from accelerating even more?

TUSHAR PODDAR:As always is the case with India, there are a lot of challenges. It is still a relatively poor country, and the impact of COVID has been quite negative in the sense that it has hurt the bottom part of the population much more, both in terms of health care, in terms of loss of jobs and livelihoods. And so, India’s sort of seeing what I call a K-shaped recovery, where there is part of the economy that’s growing very fast, but then there is another part which is at the bottom. They’re not consuming as fast, and that’s holding back growth. A couple of other points to mention. One is that India is a huge consumer of energy and it is a net importer of commodities, so the fact that commodity prices have gone up is affecting not only the growth dynamic, but also the current account and the fiscal accounts. And then, of course, India is also a capital importer, and so rising interest rates means that capital becomes more difficult to access, both the price and the availability of capital. And finally, I think the impact of climate change. India had a very large heatwave the early part of this year, in March and April, and then it had floods in August, September in the southern part and in the northwestern part, the areas adjoining Pakistan. So, I think climate change and erratic weather patterns will also be a big risk to the growth dynamic, both this year and in the medium term.

THOMAS MUCHA:  But overall, the positives in the economy are outweighing those negatives at the moment.

TUSHAR PODDAR:Oh, yes, absolutely. I think that there is an economic momentum that’s being driven by both household demand as well as corporate demand and investment as well as consumption, which is driving growth despite all the risks that I mentioned.

THOMAS MUCHA:  Now, we can’t talk about India, Tushar, without mentioning politics. India has its share of domestic political and social turbulence, much of which has been endemic over the years: Gaping economic disparity and inequality; persistent ethnic strife; growing accusations of fundamentalism, authoritarianism, and majoritarianism by the ruling BJP. So, how do these challenges, on the political side, on the social side, affect India’s growth and development, and how do they factor into your market research and analysis?

TUSHAR PODDAR:That’s a great question, Thomas. I think one thing to point out is that India is going through a remarkable period of political stability, in the sense that Narendra Modi is the predominant leader with no challenger in sight. His party, the BJP, is the predominant power in India with no challenger, again, in sight. Now, there are some positives of that and several negatives. And, as you mentioned, that the policies of both Modi and his government are fairly right wing and that is creating issues, both on the social front as well as on the religious front, especially for minorities. There is also a lack of intellectual debate in India, which comes when you have a very predominant party, which is in power and in charge. I do think that this is a medium- to long-term negative for India; however, it is not having a short-term impact on growth. In fact, the political stability is actually leading to a greater certainty for businesses and households. So, yes, there are several challenges, including the rise of inequality. But the lack of political fragmentation is leading to a better investment climate overall.

THOMAS MUCHA:  So, this political stability leads to greater certainty that policies will be implemented, carried out through fruition. But how do you think about these policies, particularly the macroprudential side of things?  Do you think they’re contributing effectively to stability in credit, stability in asset prices, this new real estate cycle that you mentioned. What, in your view, under the Modi government is working well, and where do they still need improvement?

TUSHAR PODDAR:I would say that there were a number of policies that were implemented in the past, which were of dubious quality. And there have been mistakes made which have been rectified subsequently. One example I would like to give is of the demonetization that the government attempted in late 2016, where it banned currency notes, which were the most dominant forms of circulation, almost overnight. And that led to significant problems for the population as well as for the economy. There was a pretty sharp drop in money supply after that, and that caused a slowdown in growth, which took some time to recover from. There’s also been a spread of the digital economy in many different segments, including in finance. Digital payments have been growing as a share of GDP and as a share of financial transactions. The central bank was very careful about leverage during the period immediately preceding COVID, and that led to a tightening in credit conditions, which led to the slowdown. I think over time those conditions have relaxed, and that has allowed for credit growth to come back and for the real estate cycle to start. So, I think there has been a history of both good and bad policies, but it seems to me that the government has understood the mistakes it has made in its first term and has avoided the same economic policy mistakes in the second term, at least thus far.

THOMAS MUCHA:  So, Tushar, you mentioned the digital leap forward. You mentioned the focus on technology, in terms of policy. I’d like to shift the discussion here a bit to India’s markets. What are you focused on here?  I mean, what impact do these tech industries and others have on India’s future development?  How important is it from a markets perspective?

TUSHAR PODDAR:I think it’s really exciting. I think India’s going through a digital leap, as you said, where it is sort of skipping several stages of development and going to the frontier of technology. The classic example is that India really did not have landlines. It just jumped directly from having nothing to mobile phones. And now most of the population has a mobile phone, and this is a 1.4 billion population. Similarly, e-commerce. Without going into physical bricks-and-mortar retail, it jumped a couple of steps to go directly into e-commerce and then into payments. It skipped several stages of credit card and other sort of forms of check payments, etc., and went directly from cash to digital.So, I think you can see that across sectors and across technologies where, because of technological progress, the speed of catch-up has accelerated, whether it’s in finance or in commerce, or even in health tech and ed tech. So, I think it’s a very exciting area, and there is a lot of growth opportunities, in the private space in particular. There’s been a huge surge of investments in the private space, which has led to an acceleration in the number of unicorns, or businesses which are valued at over a billion dollars. There is, of course, some steam that’s been coming off that sector because of what’s happening to tech globally, but I do think that the medium- and long-term prospects are still very exciting in that space.

THOMAS MUCHA:  So, that leapfrogging, clearly a key theme, not only for the economy but for markets. But we’re also seeing, Tushar, a lot of industry consolidation, across a number of sectors: manufacturing, banking, telecom, even retail jewelry, which is so important to the consumer segment in India. So, help us understand why this is happening and what it might mean for investors.

TUSHAR PODDAR:We have to go back a little bit to India’s economic history, and that history was dominated by a preference for small scale. And that came from a big focus by policymakers on the farmer and small-scale industry. So, there were actually barriers put for companies to increase in scale. That meant a limit to growth, because if you don’t grow big, how are you gonna grow? And it also meant inefficient allocation of resources, both capital and labor. That has been changing over time, so I think it’s a very good trend that there is greater scale, that a very informal economy is now transitioning to a more formal economy. Technology’s definitely helping in that transition. I think the fact that there is greater capital availability for the large players is allowing them to grow bigger and to consolidate. I do think that this has positive benefits in terms of its impact on efficiency, and better allocation of capital and labor. However, that does leave the question of what happens to the tail, or the informal sector that gets left behind. I think that that is where government policy and safety nets will have to work toto improve their situation. I wrote a paper about six years ago which argued that India’s was one of the largest informal labor markets globally, with about 80 percent of its labor force being employed in the informal sector, particularly in agriculture. As that formalizes, that means that they get better health care benefits, they get better pension benefits, they get better on-the-job training, there’s greater certainty of income. So, I think that there are many benefits to formalization to scale.

THOMAS MUCHA:  Yeah, we’ll have to keep watching that as the social and political implications of this transition are clearly a big factor in India. So, too, is manufacturing, of course. The “Made in India” slogan is becoming a bigger focus for the government as well, making everything from iPhones to combat helicopters, right there in India. In fact, there’s a lot of speculation that India may be poised to supplant China as the world’s next manufacturing hub. So, besides technology, besides this industry consolidation we’re talking about, what else do you think investors should be keying in here as India tries to boost its domestic manufacturing jobs?

TUSHAR PODDAR:I think manufacturing is a very exciting story and has legs in India, and it is driven by a number of factors. I think the first factor is that India’s import of manufacturing goods was extremely high and needed to be reduced, and so the government is focused on import substitution, or moving manufacturing onshore to reduce the current account and trade deficits. And so, we can see a number of incentives for manufacturers, especially of mobile phones, electronic equipment, things like modems and wi-fis and network routers, etc., now locating onshore. A second reason is for global supply chains to pay greater attention to India as part of a China Plus One strategy. Given the tensions and lack of reliability during the pandemic of supply chains, global supply chains have realized that there should be some hedging, and therefore they’ve been investing in India as a large provider of manufacturing goods. The government is trying to attract greater foreign direct investment in manufacturing through its production-linked incentives scheme, or PLI scheme. And that is working extremely well for sectors such as electronics, auto components, and other manufacturing sectors, including low-end manufacturing like textiles and food processing. So, I do think that there is a lot of opportunity in manufacturing today in India, especially for small companies or multinationals who wanted to work in India, but also for Indian-listed manufacturing companies that are being able to scale because of the government’s incentives, and because of markets opening up to them. So, as an investment opportunity, I think that there is huge potential in manufacturing.

THOMAS MUCHA:  What about the national security or strategic geopolitical motives here? I mean, what’s in it for India to really bolster this manufacturing sector in that context?

TUSHAR PODDAR:I think the first reason is to reduce reliance on imports, especially from China. And critical defense equipment and critical inputs, including spare parts, I think India’s trying to localize much more. Second, is that there is a geopolitical rivalry with China, and there is a need to wean itself away from China, and to grow its own domestic prowess. A third reason is that India is a big oil importer, therefore, it needs manufacturing to compensate for those energy imports. So, I think that there are many reasons, both geopolitical as well as geographic, for India to focus on manufacturing.

THOMAS MUCHA:  Well, let’s dig deeper into the geopolitics, Tushar. You know that’s my favorite topic. It’s clearly also an important one for India, given the Ukraine conflict, India’s persistent issues with Pakistan, and this historic and lingering crisis situation on the border with China. Let’s start with the Ukraine piece of this. Now, India obviously has strong ties with Russia. How do you explain Delhi’s position on the war?  What are they trying to accomplish here?

TUSHAR PODDAR:I think it’s a very difficult situation for India when the Ukraine war started. Now, traditionally, India has had a very strong and close relationship with Russia, stretching all the way back to the Cold War, when India’s defense equipment was mostly produced in the Soviet Union. And it got a lot of technical assistance as well as know-how from the former Soviet Union. So, given the very strong links between these two countries, it was put in a very difficult situation during the war as to how to sort of approach it. And I think India’s response was that we are going to look at it very selectively, based on our own national interests. And I think the fact that energy prices rose quite dramatically meant that India was a big importer of oil from Russia. And the local argument was that if Europe can import gas and other commodities from Russia, then why should India not import oil from Russia? And so, I think the local arguments were very jingoistic and nationalistic, and looking at the national interest. I do think that India had an opportunity to rap Russia on the knuckles a bit more at the beginning of the war, which it chose not to take. It has taken that much more belatedly. In my view, I think that India could have been more forceful in terms of protecting human rights and its antiwar rhetoric. It has come out with a mixed message, which has been a bit confusing. It has focused more on its national interest and not sort of focused on what the UN and its Western allies wanted it to do. 

THOMAS MUCHA:  A lot of the policymakers in DC that I talk to are increasingly frustrated, by India’s position on the Ukraine conflict, but they’re understanding of the short-term economic desires here, particularly on the energy side, particularly as India comes out of the COVID crisis. But longer term, there’s an expectation from the West that India will play its part in the Quad, the Quadrilateral Security Dialogue. This is this strategic, though technically informal coalition among the US, India, Australia, and Japan. This has been a big geopolitical objective of the Biden administration. In fact, the first phone calls that President Biden made after inauguration were to the three other leaders of the Quad. From India’s perspective, what do you think are the broader domestic and foreign policy objectives of Quad membership? I mean, is it all security or does this go beyond security to infrastructure development, climate resilience, vaccine cooperation, or other issues? 

TUSHAR PODDAR:So, I think the first point to highlight is that Indians generally have a very positive view of America. And that is shown in every survey is that the population itself domestically has a very positive opinion about America. And that could partly be because there’s lots of Indians who live in the United States. It can also be because it’s been seen as a country which has been at the forefront of technology and military growth, etc., and economic growth. So, India’s always hankered for or aspired for the same sort of economic growth and same living standards and model. So, there is a huge approval rating which informs domestic politics, as well. Given the high approval rating that America has in India, it’s difficult for any government to not have a positive relation with America. But let me put it in a more positive way. Subsequent governments, whether it’s Congress- or BJP-led, have had a clear preference for the United States over other global powers. And that, I think, is the underpinning of its relations with the Quad. It sees the US–India relationship as critical for the twenty-first century. I think another reason why India is very favorably disposed to the Quad is its anti-China view. Just as it is very close to America in terms of its approval rating, China has a very high disapproval rating in India. And, it’s partly to do with India being a democracy, partly to do with it seeing China as competition, but there is clearly a lot of tension between the two countries in Asia. And that has meant that it has moved closer to the Quad, than otherwise. A third reason is that Japan and India have also traditionally had very close ties, including the current prime minister, Modi, with the erstwhile prime minister of Japan, Abe. They were very, very close, and so Japan is one of the biggest investors in India, from a foreign direct investment perspective. So, it seems like these are natural allies in many ways. However, having said all this, I think India has several times not delivered things that it should as part of that alliance. It is very good at hedging its bets and you saw that this year, with Russia. That’s partly because India’s foreign policy has not been very focused. After independence in 1947, it followed a nonaligned movement where it was neither aligned with the US nor with the Soviet Union, and so it’s been not sure about which side it wants to be on, and that has muddled the foreign policy stakes. But, I think over the last decade or so it’s decidedly moved towards a pro-Western and, in many ways, based on your question, a pro-Quad direction. But I still think it has a long way to go.

THOMAS MUCHA:  Yeah, it’s one of those very important questions out there in the great-power world: Which way will India tilt? At what speed will this happen? And what are the regional security and economic implications of this? Now, India’s in the crosshairs of geopolitics. It’s also in the crosshairs of climate change. Wellington’s research partners at the Woodwell Climate Research Center project increasing risk of heat, drought, water scarcity on one hand, and then extreme precipitation and flooding, during monsoon seasons on the other hand. Now, and all these climate factors could have devastating humanitarian as well as economic effects. So, Tushar, how do you think India is preparing for climate change, and what are the key market implications of this?

TUSHAR PODDAR:I agree. I think that climate change is one of the biggest risks that India faces. I believe that we are not too far away from some major shocks hitting the country. I think that means that there should be a higher risk premium attached to Indian assets, given the uncertainty of this, and when it could strike and the extent of damage. The way that India is dealing with it is a huge focus on renewables. India plans to be net-zero emissions by 2070, but my guess is that it will probably achieve that sooner. Huge investments are going into clean energy, into solar, in particular, as the cost of solar has come down quite considerably. There’s also a lot of investments into hydrogen and more renewable forms of generating energy. I think that weaning itself away from coal, which is still the predominant part of its power generation, is a big policy priority for the Modi administration. And we’re likely to see some progress on that. But it’s a huge challenge. There is a long, long way to go. I think that India will need a lot of resources and energy to deal with this. I also think that it will need a lot of international support. I don’t think it can do it on its own. So, the United Nations, the World Bank, Asian Development Bank; I think the multilaterals will have to come in in a big way to decarbonize the economy. But I think that there is a recognition in the highest levels of policymaking that this is an existential challenge.

THOMAS MUCHA:  The other side of this, Tushar, and the one that concerns me from a national security perspective and a general human perspective, is what this does to human health and those sorts of aspects of climate change. I’m curious how you’re thinking about resiliency and adaptation, making India more able to cope with rising temperatures, water issues, flooding, extreme precipitation, all of that. Is India going to get more resilient?

TUSHAR PODDAR:I think that is going to take quite a bit of time to get those policies and infrastructure in place to deal with the kinds of cyclones and climate change impact on drought and floods, and heat, particularly. We’ve seen some mitigation efforts, but we’re very far away from what needs to be done. So, I think that India will need to really invest significant resources into climate mitigation and adaptation. And especially in its coastal states, which are subject to not only cyclones but also rising sea levels and threats to livelihoods.

THOMAS MUCHA:  All right, Tushar, thank you. I’d like to begin to wrap up our fascinating conversation here with a few questions more on the personal side, more on your research process. So, first, tell us about your career path. How did you end up in this position of analyzing such an important country for a place like Wellington? 

TUSHAR PODDAR:A long and circuitous route, I must say. My first job was at the IMF, in Washington, DC, where I was analyzing emerging markets in all parts of the world. From there, I went to the sell side, to look at India, in particular, but also other countries in Asia, and having the opportunity to work from Mumbai for a prolonged period of time, interacting with policymakers both in the government and at the central bank, and spending a lot of time on the ground in understanding issues, local issues. That sort of really helped shape me in terms of my thinking and my analysis. And from there I moved to Wellington as a macro strategist, because I felt like it was a great place to be a practicing economist and to use my skills to good effect. I think I joined an excellent team, and it was a great opportunity to learn from them and also to cover the countries that I knew well, and to learn much more about investing in them. 

THOMAS MUCHA:  Circuitous, yes, but also pretty comprehensive. So, you have been paying attention to India from all these perspectives. So, how does that inform your research, and how does the collaborative environment, the research environment we have here at Wellington impact that process?

TUSHAR PODDAR:The best part is that I’ve been born and brought up in an emerging market and have worked most of my life on emerging markets, so, I think I have a better feel for what drives emerging markets. Along with that, a deep love for financial markets. I also take the long view. I think in terms of structural ideas and thoughts and what drives economies over the long term and not just over the next three months or six months. And that helps me look over or ignore some of the noise in terms of daily news and data, so that I can focus more on underlying trends. In terms of deep pools of expertise and knowledge in investing in a number of these markets and asset classes, whether it’s in bonds or in equities or in FX, I think that we have really deep, deep reservoirs of knowledge here. So, I think that having access to both the people here, the frameworks that we’ve developed, as well as being able to get knowledge and information from policymakers around the world, both through my past affiliations, as well as my recent contacts, I think helps us get an edge over the competition.

THOMAS MUCHA:  What about outside of the walls of Wellington?  Is there a book you could recommend, Tushar, something that may have influenced your thinking about India or helped you gain a deeper understanding, maybe not of India but of the world in general, and how the world works?

TUSHAR PODDAR:For people who want to know about India, I would recommend Ramachandra Guha’s India After Gandhi. It’s a very magisterial book, which starts from Gandhi’s assassination in 1948, and then a young nation and how it developed and what sort of went into making it. There’s so many other books that I’m not being able to sort of pinpoint one or two. I’m reading this book right now which is really good, which is Why the West Rules, For Now. I think the author is Ian Morris. Another massive book, but I think that charts through 3,000 years of history, of development in different areas. It’s an old book it’s about ten years old, but I think it’s still a pretty good read in understanding why things developed in places where it did; why technology developed in some places, and why growth happened in some places. I think it takes you back to the beginnings of civilization almost. 

THOMAS MUCHA:  Given your long-term focus, Tushar, I can see why a book that goes back 3,000 years would appeal to you.

TUSHAR PODDAR: I don’t always read books that are that long, but this one was something that caught my attention and I thought it was a good read.

THOMAS MUCHA:  All right, last question, my friend. If you weren’t a macro strategist here at Wellington, what other career could you see yourself pursuing?

TUSHAR PODDAR:  I would probably say a policymaker, where I would be involved at some point with monetary or fiscal or some combination of those policies. Or I could see myself also to be in education on the teaching side of it, working with students and developing them.   

THOMAS MUCHA:  All right, Tushar. Thank you so much. Once again, we were joined today by macro strategist, Tushar Poddar. Thanks again, Tushar.

TUSHAR PODDAR:Thank you, Thomas. It’s my pleasure.



Views expressed are those of the speaker(s) and are subject to change. Other teams may hold different views and make different investment decisions. For  professional/institutional investors only. Your capital may be at risk. Podcast produced December 2022.

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In Singapore, this material is provided for your use only by Wellington Management Singapore Pte Ltd (WM Singapore)  (Registration Number 201415544E). WM Singapore is regulated by the Monetary Authority of Singapore under a Capital Markets  Services Licence to conduct fund management activities and is an exempt financial adviser. By accepting this material you  represent that you are a non-retail investor and that you will not copy, distribute or otherwise make this material available to any  person.   In Australia, Wellington Management Australia Pty Ltd (WM Australia) (ABN 19 167 091 090) has authorized the issue of this  material for use solely by wholesale clients (as defined in the Corporations Act 2001). By accepting this material, you acknowledge  and agree that this material is provided for your use only and that you will not distribute or otherwise make this material available  to any person. Wellington Management Company LLP is exempt from the requirement to hold an Australian financial services  licence (AFSL) under the Corporations Act 2001 in respect of financial services provided to wholesale clients in Australia, subject to  certain conditions. Financial services provided by Wellington Management Company LLP are regulated by the SEC under the laws  and regulatory requirements of the United States, which are different from the laws applying in Australia.  In Japan, Wellington Management Japan Pte Ltd (WM Japan) (Registration Number 199504987R) has been registered as a  Financial Instruments Firm with registered number: Director General of Kanto Local Finance Bureau (Kin-Sho) Number 428. WM  Japan is a member of the Japan Investment Advisers Association (JIAA), the Investment Trusts Association, Japan (ITA) and the  Type II Financial Instruments Firms Association (T2FIFA).  WMIL, WM Hong Kong, WM Japan, and WM Singapore are also registered as investment advisers with the SEC; however, they will  comply with the substantive provisions of the US Investment Advisers Act only with respect to their US clients.  ©2022 Wellington Management Company LLP. All rights reserved.