India Playbook 2024: Aiming for a trillion dollars in forex reserves by 2029
India's economic trajectory over the next five years positions it as a prime target for global investments. This outlook is driven by a stable macroeconomic environment, robust earnings growth among Indian corporations, and increasing weightage in the MSCI Emerging Markets (EM) index. The inclusion of Indian debt in prominent Emerging Market Bond indices further enhances the attractiveness of India's investment landscape. With software services and remittances significantly contributing to foreign exchange (forex) inflows, India's forex reserves have reached unprecedented levels, setting the stage for ambitious future targets.
Capital Account Inflows and Remittances:
India's forex reserves stood at an all-time high of $646 billion as of April 1, 2024, marking an impressive increase of $68 billion from the previous year. Forex reserves have doubled in the last 10 years. A key driver of this growth has been remittances, which now exceed $100 billion annually, outpacing capital account inflows. Looking ahead, capital account inflows—including Foreign Direct Investment (FDI), Foreign Portfolio Investment (FPI) in equities and debt—are projected to surpass $100 billion annually starting from FY2025E. This surge in inflows is expected to bolster the corporate capital expenditure (CAPEX) cycle and reinforce the strength of the dollar, propelling forex reserves towards the trillion-dollar mark by 2029E. (Source: JM Financial, Kotak)
MSCI EM Index and Equity Inflows:
India's prominence in the MSCI EM index has grown
