Investing.com -- Bernstein believes India could emerge as a winner if the US economy enters a recession, given country’s unique economic resilience and strong domestic drivers.
“The largest and the fifth-largest economies have in the past often been fairly independent of each other without strong linkages,” analyst at Bernstein said.
Brokerage turned positive on India’s equity markets earlier this year after a cautious outlook in 2024, maintains that India’s macroeconomic recovery is already underway, with potential global challenges now in focus.
Historically, India’s economy has shown little correlation with the US, often growing even when the US slows down.
Bernstein’s analysis suggests that India’s GDP growth tends to bottom out ahead of sharp US contractions, and the weak growth in the September 2024 quarter likely marked the low point. India’s economy can continue to recover despite external headwinds.
India’s limited reliance on US discretionary markets may work in its favor.
Key exports such as pharmaceuticals, IT services, jewelry, and petroleum products remain relatively insulated from a US downturn.
Generic pharmaceuticals are essential goods, IT services have already absorbed weak discretionary spending, and jewelry and petroleum exports contribute marginally to India’s overall net exports.
While auto components and apparel may see some impact, their share in India’s total exports is too small to significantly affect the broader economy.
Foreign outflows, which have pressured Indian markets over the past six months, also appear to be slowing.
Despite $28 billion in outflows since October, the market correction has been less severe than during the global financial crisis or the COVID-19 pandemic.
Foreign direct investment remains steady and resilient, and remittances, though likely to decline in the short term, have historically rebounded within two quarters.
A weaker US economy could also lead to lower prices for commodities like crude oil, copper, aluminum, and steel, easing India’s import bill and keeping inflation subdued.
This could stabilize the rupee and pave the way for further rate cuts, boosting the domestic economy in the second half of 2025.
Bernstein suggests that while Indian markets have corrected by 10% from their peaks and sectors like IT and autos are down over 20%, the stage is set for a quiet recovery.
With global trade’s impact on India limited and domestic conditions improving, India appears well-positioned to navigate any turbulence in the US economy.