This past week was inspiring for India as it attracted more than US$ 380 billion in investments. Now, don’t get too excited because we aren’t talking about stock market inflows.
These are amounts that are committed by leading global and domestic businesses to invest in India in setting up and expanding their operations.
The investments were thanks to two big events, which caught a lot of media attention - I) The Tamil Nadu Global Investors Meet; and II) Vibrant Gujarat Summit.
What’s the deal?
State governments organize investment summits to promote their industries as investment destinations and to provide a platform for investors, both domestic and overseas. This shows that the state is open to business, thereby contributing to its economic development and prosperity.
The Tamil Nadu Global Investors Meet (GIM)
The government of Tamil Nadu held its 3rd Tamil Nadu Global Investors Meet (GIM) on January 7 and 8.
This year’s edition topped previous amounts and fetched a total of US$ 80 billion of investments, much more than the anticipated sum of US$ 60 billion and 120% higher than the last edition.
The first two such summits happened in 2015 and 2019. The first two editions attracted US$ 30 billion and US$ 36 billion, respectively. This year, out of all the sectors, investments in sectors such as energy and electronics stood out.
The US$ 80 billion number also includes foreign direct investment (FDI) of close to US$ 7.2 billion. For context, the whole-year FDI for Tamil Nadu in FY23 was just above US$ 2 billion.
The investment commitment will be a major boost for Chief Minister MK Stalin’s vision of the state becoming a US$ 1 trillion economy by 2030.
Vibrant Gujarat Global Summit (VGGS)
Coming to the western part of India from the southern one, the 10th edition of the Vibrant Gujarat Global Summit kicked off on January 10. This summit is now 20 years old since it was started way back in 2003 by then-Chief Minister Narendra Modi.
Around 1.3 lakh participants from 140 countries registered for the event; even the number of partner countries increased to 35 compared from 15 in 2019 (the last edition).
The Gujarat government said that so far, 234 MoUs proposing investments of close to US$ 300 billion have been signed, with the potential to generate around 1.3 million jobs.
This will surely help Gujarat achieve its US$ 500 billion economic target by 2026–27.
Why Does it Matter?
Thanks to the Vibrant Gujarat Summits, the state was able to get US$ 55 billion in FDI in two decades. This has taken Gujarat from being a US$ 13 billion economy back in 2003 to US$ 308 billion in 2023. That’s a staggering growth rate of 17% compounded annually!
After seeing Gujarat’s success, other major states such as Karnataka, Maharashtra, Haryana, Madhya Pradesh, Tamil Nadu, and Odisha followed suit by organising investment summits. As a result, India is projected to have the highest ever FDI inflows of US$ 100 billion in a single financial year.
More Investments = More Growth
Foreign direct investments (FDIs) distinguish themselves from the more short-term nature of investments made by foreign institutional investors (FIIs). FDIs, constituting long-term capital, play a crucial role in strategic development and sustained growth for host countries, particularly emerging ones.
These investments, extending beyond mere capital infusion, contribute to the transfer of technology, expertise, skills, and innovation. The result is heightened productivity, improved infrastructure, and enhanced efficiency in the economy, fostering economic growth.
Take, for instance, the electronic sector's transformation in India due to significant FDI inflows propelled by the government's Production-Linked Incentive (PLI) scheme. This initiative facilitated India's transition from a net importer to a net exporter of mobile phones, with mobile phone net exports skyrocketing from a negative US $3.3 billion in FY18 to a positive US $9.1 billion in FY23 within just five years.
In tandem with FDIs, private sector investments assume a pivotal role in shaping a country's GDP, encompassing consumption, government spending, private spending, and net exports.
Beyond contributing to economic metrics, these investments create job opportunities, facilitate knowledge transfer to local workers, elevate the standard of living, and foster economic diversification.
Ultimately, the confluence of FDIs and private sector investments emerges as a catalyst for comprehensive national growth, influencing not only the economic landscape but also the dynamics of the stock market.
So What Does All This Have to Do with the Markets?
There are several reports (like this one) that suggest a strong positive correlation between the performance of BSE Sensex and FDI inflows. Higher FDI inflows are often perceived as a sign of confidence by foreign investors in the Indian economy.
Private sector investment, including both foreign direct investment (FDI) and domestic contributions, positively influences economic growth by targeting productive sectors. Notably, recent themes such as renewable energy, electronics, and automobiles have attracted significant attention and investments. This trend is expected to enhance corporate profits, with the stock market reflecting investor interest and improved profitability in these sectors.
Adani and Reliance have announced significant investments in the energy sector, while Tata's diverse portfolio spans power to automobiles. Global participation includes Suzuki, Hyundai, First Solar from the US, and Vietnam's VinFast, all making substantial investments in both of these summits.
As an investor, a close study of FDI and private sector investment flows can be beneficial in identifying potential sectors that are poised for long-term growth opportunities, and investing in them can give you an edge.
The success of the Gujarat model highlighted the significant contributions of foreign and private investments to an economy. While the government actively pursues the ambitious goal of transforming India into a US$5 trillion economy, it recognises the imperative of collaboration with the private sector.
The government has initiated investments, and now the pivotal role lies in attracting and deploying private and foreign investments to drive economic growth. This not only fosters GDP expansion but also propels stock market growth, reflecting the optimistic outlook for India's economic trajectory.
One thing is sure: with all the investment done and more to come, there will be a plethora of opportunities to invest and gain meteoric returns if one has the endurance to sit tight and navigate the volatility of markets in the long term.