Vested Shorts: India’s Power Play- Modi’s US visit bolsters defense and economic ties

by Parth Parikh
June 27, 2023
2 min read
Vested Shorts: India’s Power Play- Modi’s US visit bolsters defense and economic ties

Market Snapshot

A positive consumer confidence report on Tuesday revived investor optimism, leading to a widespread stocks rally and a rebound for the S&P 500 and Nasdaq Composite from their two-week lows.

India’s Power Play

Source: New York Times

India is a major player on the global stage with a GDP of around $3.2 trillion and a population of 1.4 billion people. Prime Minister Narendra Modi’s recent trip to the United States highlighted India’s dynamic economy and expanding consumer market. The visit culminated in a high-profile event at the White House, attended by prominent guests such as Sundar Pichai, CEO of Alphabet Inc., and Satya Nadella, CEO of Microsoft Corp. This successful trip not only solidified India’s diplomatic relations with the US but also yielded significant defense and commercial agreements, solidifying military and economic ties between the two nations. Some outcomes of the visit include:

  • Strengthening defense partnership: A significant portion of Indian weapons are supplied and maintained by Russia. The US wants to reduce India’s dependence on Russian imports by helping India manufacture F414 engines and MQ-9B SeaGuardian drones.
  • Boosting semiconductor manufacturing: India’s semiconductor market is projected to reach $64 billion by 2026, yet the country lacks indigenous manufacturing capabilities. Prime Minister Modi extended invitations to Micron Technology and Applied Materials, urging them to establish semiconductor manufacturing facilities in India. This move aims to bolster India’s position in the global semiconductor industry and promote self-reliance in advanced technology.
  • Joining the Artemis Accord: The Artemis Accord is a US-led framework for peaceful space exploration signed by 24 countries (excluding China and Russia). This move signifies India’s alignment with the United States’ approach to lunar endeavors, positioning itself as a counterbalance to geopolitical powers such as China.

This visit and its outcomes reflect a shift in the geopolitical landscape, favoring India. Goldman Sachs identifies India as one of the pivotal “Geopolitical Swing States” capable of shaping the future international balance of power between the US and China. This reorientation away from China signifies India’s growing attractiveness as an investment destination while China’s appeal wanes. 

Figure 1: Indian markets outperform their peers. Source

India’s evolving financial landscape offers excellent potential for investors and global leaders seeking alternatives to China, which faces challenges due to its zero-Covid strategy and reduced global manufacturing demand. Indian equities have outperformed other emerging Asian markets in the second quarter, demonstrating India’s potential as an emerging market economy, especially as sentiment toward China diminishes (see Figure 1 above). However, India still needs to improve its financial institutions and investment opportunities to match China’s level of development, which is four times larger than India’s economy. 

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