Moneycontrol Pro Weekender: India in The Time of Monsters

Dear Reader,

In October last year, McKinsey Global Institute (MGI) brought out a report titled ‘On the cusp of a new era?’ Note the question. The report said the current economic and political turbulence could presage the start of a new era. In September 2023, they brought out another report, this time with the title, ‘Asia on the cusp of a new era’. The question in the earlier note has apparently been answered.

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The thesis of the reports is that what McKinsey has dubbed ‘The Age of Markets’, which lasted from 1989-2019, is now at an end. The report says Asia “will experience a more concentrated, heightened version of the global challenges”. These challenges include trade tensions, technological change, rapid ageing, the brunt of the net zero transition and heightened cost of capital and balance sheet stresses.

These challenges have all been exacerbated by geopolitics. The US has woken up to the fact that China may pose a geopolitical challenge to its pre-eminence, or, as some call it, hegemony. The US now calls China a strategic competitor. The last country to try to challenge the US was the Soviet Union, but that was an ideological war. In the capitalist world, Japan in the eighties got a bit uppity and the upshot was the US-Japan semiconductor war of that decade, a precursor to the current economic war against China. China, though, is not dependent on the US for its defence needs as Japan was, which is a problem.

The McKinsey report identified three global “earthquakes”. It said, “Like a real earthquake, each of them changed the global landscape with the sudden release of powerful underlying forces that had been building up around a fault line over time—but in these cases, unfolding over a few years rather than in a big bang.” It says that such forces led to the Postwar Boom (1944–71), the Era of Contention (1971–89), and the Era of Markets (1989–2019). It doesn’t yet have a name for the new era, but that is because it hasn’t been born yet. There are various processes, contradictions, and conflicts at work today and the new era will be the result of the working out of these contradictions. Who better to understand that than Antonio Gramsci, the Italian philosopher who wrote about the collapse of the old liberal world order between the World Wars. His oft-quoted saying was: “The crisis consists precisely in the fact that the old is dying and the new cannot be born; in this interregnum, a great variety of morbid symptoms appear.” Slavoj Zizek, another philosopher, changed that quote to a catchier one. He said, “The old world is dying and the new world struggles to be born. Now is the time of monsters.” Perhaps, we could call the current period ‘The Time of Monsters’.

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It’s true that Asia has been a big beneficiary of McKinsey’s Era of Markets and will be worse off during the Time of Monsters. While India too has benefited from globalisation, it hasn’t really done as well as the countries of East and Southeast Asia. The supply chains that powered Asian growth have for the most part bypassed it. It hasn’t become an export powerhouse.

Yet, unlike China and the countries of East Asia, India will continue to have a very young population for decades. The MGI report says, “The big move is in India, where the share of workers on farms is expected to fall sharply, from 46 percent in 2022 to 29 percent in 2050. An additional 223 million people are expected to be employed in India’s nonfarm sectors.” That will be a big boost to productivity. Our services exports have proved resilient in the face of a global trade slowdown. And far from suffering because of de-globalisation, foreign manufacturers are now looking to set up a base in India. Indeed, the geopolitical rift between the West and China is a huge opportunity for India. If it missed the train earlier, this is a lucky second chance.

That brings us to the Nomura report this week that upgraded India to overweight from neutral. It said, “The structural story of India is now well known as a major beneficiary of the “China+1” theme, possessing a large, liquid equity market. We see recent softness driven by higher oil prices as an opportunity to raise exposure. While this weakness may persist in the near term, thus presenting even better timing, we think the window of opportunity might not be open for too long. Valuations are expensive but will likely remain so in a scenario of policy/government continuity.” And this upgrade has happened despite the Indian market’s forward price-earnings multiple being far above the rest of the regional markets. Clearly, the markets see the new era as an opportunity for India, not a threat. India will do well during The Time of Monsters.

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The Indian advantage is also seen from another report unveiled this week—the Global Innovation Index 2023. While India has retained its 40th rank in the index, it’s worth noting that it did particularly well on two counts—knowledge and technology outputs (rank 22nd) and on market sophistication (rank 20th).

In short, while the Time of Monsters will throw up new winners and losers, the opportunity is India’s to lose. One must walk carefully and not become over-confident. And it’s time to tone down the rhetoric -- there is no need to emulate China’s wolf-warrior diplomacy. As Deng Xiaoping, perhaps the person who did the most to make China a global power, wisely said, “Observe calmly, secure our position, cope with affairs calmly, hide our capacities and bide our time, be good at maintaining a low profile, and never claim leadership.”

Cheers,

Manas Chakravarty

Here are some of the stories and insights we published this week, apart from our technical picks in the equity, commodity and forex markets:

Stocks

JSW Infrastructure, Uflex, Balaji Amines, Gaming Industry, SAMHI Hotels, Cyient DLM, Seshasayee Paper, Concord Biotech,

Sagar Cements, EIH, Cochin Shipyard, Manappuram Finance, Weekly tactical pick, Sharda Cropchem

Markets

What the Eurozone taking a turn for the worse means for India’s stock markets

ESG investing still a novelty

ESG under the microscope

Higher for longer theme may lead to broad sell-off

Global markets brace for ongoing correction