India - China: Geopolitics Boosting India's Manufacturing
STORIES, ANALYSES, EXPERT VIEWS
There is a growing excitement around homegrown firms around manufacturing shifting base from China. The reason for that optimism, according to Bloomberg, “is firmly entrenched in geopolitics. The short-lived rout in Chinese stocks that followed President Xi Jinping’s ascendancy to a precedent-breaking third term came as a wake-up call. As Beijing threatens to break away from the West’s economic and political orbit under its strongman leader, multinational firms need a backup location for making gadgets. And when it comes to implementing a China+1 strategy, who has a deeper labor pool than India?”
Stock market taking note of this
The stock market, writes Bloomberg “is taking notice of the order flow. After a sixfold jump in two-and-a-half years, Dixon’s market value is now more than $3 billion. Taiwan’s PC maker Acer Inc. announced a partnership with the Indian firm last year. Headquartered in Noida, a suburb of New Delhi, Dixon is already manufacturing monitors for Dell Inc. and will soon start churning out Android-based smart TVs under a sub-license from Alphabet Inc. Sales grew 38% and profit rose 23% from a year earlier in the September quarter.”
Analysts are super bullish: Nirmal Bang, a Mumbai-based brokerage, expects compounded annual profit growth of 52%-plus between 2022 and 2025. Jefferies Financial Group Inc. is penciling in an even faster expansion in earnings — 63% annually over three years. ‘We view Dixon as a structural play on indigenization,’ the researchers say.
Huge investor interest
India as a risk-mitigation tactic, a hedge against manufacturing all widgets in China, according to Bloomberg “is a story that’s gathering investor interest and helping to justify lofty valuations. The premium for Indian stocks over emerging-market shares is currently three standard deviations higher than the 10-year average. There’s plenty of nervousness, though. Apart from domestic banks, whose asset quality and margins have improved, some of the other investment themes are looking tired, at least temporarily.”
Adding to the optimism is the fact that “the worst of the inflation surge is probably over, and the Reserve Bank of India may be close to a pause in its interest-rate cycle. But price pressures are still elevated….”
