Agreed that India has been slower in terms of passing reforms but the truth lies in the fact remains that India is the only bright spot to bet on as of now. Let's walk out of the stock market world and see the macro economics of India from an eagle's eye. With crude oil prices falling over 85% and 75% jump in Foreign Direct Investment on a yearly basis it is absolutely imminent that India's macroeconomic scenario is bound to improve. The only negative thing which India is facing right now is the weak rupee.
Crude oil prices
This is the biggest advantage India has had since 2014. The crashing of crude oil prices to the extent of 85% in last two years has helped India get rid of its fiscal deficit. The fiscal deficit which stood at 12% at one point of time is meager 4%. This has also helped India in maintaining the value of rupee against dollar. Moreover, crash in crude oil prices have also helped airline companies to get rid of their dues. Companies like IndiGo, Spicejet and Jet Airways registered record profits this year. Investment bankers peg crude to touch $25 a barrel in future. In 2015 alone, India saved Rs 98.000 crore from the crude oil crash.
Opening door for Foreign Direct Investment
Amendments made to the FDI policies have been a masterstroke for the Modi government. Not only have companies started seeing India as a hot investment destination but are also digging out opportunities for joint ventures and investment. With 51% open for FDI, insurance and defense are such sectors that stand to gain the most. In 2015, India received an investment of $60 billion with US being the biggest investor. Among many, the biggest achievements include Russia's association with Indian companies to build choppers and $10 billion commitment over 5 years from Foxconn.
Another important change that has affected the macroeconomic environment is the changes in the retail policy. Many retail companies Nike, H&M, Adidas, Apple and Gionee have applied to the DIPP for opening own stores in India. This in itself stands to bring investment in India.
Interest rate cuts
Insignificant it may seem, but the interest rate cuts of 2015 will play a pivotal role for companies' turnaround in 2016. RBI's Raghuram Rajan slashed interest rate four times to 6.75% in 2015 in a bid to spur investment. But since banks had a log of bad loans, it may take some time. With many new startups and companies coming up the horizon, interest rate cuts will leverage the company's profits to new high which in turn will improve India's macro economy and business environment. As far as bad loans and increasing Non-Performing Assets (NPAs) are concerned, RBI's chief along with troubled banks is en route to find a solution to end the NPA and loans which are weighing down the profitability.
Of-late inflation in India is rising, however, is quite below RBI's January target of 6%. Let's not forget the fact that 2015 was the warmest year on record while India was hit with severe drought, floods and untimely rainfall that destroyed crops across India. Despite facing these calamities, managing inflation under 6% is quite impressive. With enough cash cushion (gained from crude oil crash) and successive interest rate cuts in 2015, inflation in India will remain under control for at least three quarters, giving scope for further rate cuts.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.