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Are India's Stocks Good Investments Amid Global Tensions?

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India is currently one of the world’s fastest-growing economies at present on the back of strong manufacturing and services activity. While manufacturing index touched its best level in June since last December, services index touched its highest level in the last one year. Additionally, new orders and production also increased in June.

Moreover, foreign exchange reserves in the $2.6 trillion economy also increased as per the latest weekly Reserve Bank data. Also, both World Bank and IMF expect India’s economy to post stable growth in the current fiscal year.

India’s broad-based index, Sensex, jumped 14.9% in the last one year. In this respect, investors tired with the ongoing global uncertainties pertaining to trade war should shift their investment in this emerging market.

Manufacturing Touch Six-Month High, Services Best In A Year

The Nikkei India Manufacturing Purchasing Managers’ Index (PMI) increased to 53.1 in June from 51.2 in May. Manufacturing activity not only reached its best level since December 2017, but also its second-best since October 2016. Strong increase in production and orders contributed to this performance in June.

Production advanced in June, posting expansion for 11 consecutive months. New orders rose to its highest level this year in June after expanding for eight straight months. Commenting on India’s manufacturing activity, an economist at IHS Markit, Aashna Dodhia, said that the country’s manufacturing sectors ended its fiscal first quarter “on a solid footing,” following healthy demand conditions.

Additionally, Nikkei India Services Business Activity Index advanced from 49.6 in May to 52.6 in June, settling at its highest level since June 2017. After contracting in May, the service sector expanded in June, “against a backdrop of improving demand conditions” according to Dodhia. Improvement in demand conditions boosted the sector and led its employment growth to pick up from May’s weak performance.

Foreign Exchange Reserves Recover, Outlook Upbeat

India’s Foreign Exchange Reserves increased from $405.08 billion to $405.14 billion for the week ended Jul 20, per data from the country’s central bank, Reserve Bank of India (RBI). Foreign Exchange Reserves recovered on the aforementioned week after registering five straight weeks of decline. In its second bi-monthly monetary policy statement, the RBI retained GDP growth forecast for the country of 7.4% for the current fiscal 2018-19.

Meanwhile, the IMF lowered its growth projection for the economy from 7.4% to 7.3% for the current fiscal. However, despite this minor setback, India is still growing faster than its neighbor China, which is expected to register growth of 6.6% during the same period.

Moreover, per World Bank’s figures, India’s economy hit the $2.597 trillion mark in 2017, becoming the world’s sixth-largest economy, surpassing France to claim the spot. Like IMF, World Bank has forecast that India will post GDP growth of 7.3% this fiscal.

Given this scenario, India’s stocks expected to garner investor attention belong to auto manufacturer, Tata Motors Limited (TTM - Free Report) , online travel company, Yatra Online, Inc. (YTRA - Free Report) and business process management company, WNS (Holdings) Limited (WNS - Free Report) . All these companies, including IT services providers, Infosys Limited (INFY - Free Report) and Wipro Limited (WIT - Free Report) , have a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

Summing Up

Encouraging manufacturing and services activity, strong increase in production and orders, and recovery in foreign exchange reserves have put the spotlight on India’s economy. Additionally, encouraging economic growth outlook by the country’s central bank and international financial organizations like the IMF and the World Bank have also raised optimism. In this context, investors willing to move past global uncertainties can think of investing in companies from the world’s fastest-growing economy.

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