India's higher GDP ranking to boost equities

In the last 10 years, India's GDP moved up nearly 3-fold to about $2 trillion now from about $690 billion in 2004. However, it still remains as the 10th largest economy in the world (as it was in 2004), after Brazil (7th in ranking), Italy (8th) and Russia (9th). However, India has a fair chance of moving up 3 notch in one go in the global country-wide GDP rankings within a couple of years.

The GDP of Russia, Italy and Brazil at current market prices are $2.06 trillion, $2.13 trillion and $2.24 trillion respectively. While India is expected to grow little more than 5%, Russia and Brazil are expected to grow anywhere from 0.3% to 0.5%, while Italy could shrink 0.3% in 2014. While Brazil and Italy are expected to grow at 0.5%-0.6% in 2015, Russia is expected to contract by 5.5%, slipping into deep recession! However, India is expected to grow its GDP at little more than 6% in 2015 and 2016. A simple sensitivity analysis of near-stagnation / de-growth in these 3 economies versus about 6.5% GDP growth in India would indicate India moving up 3 notch above in the worldwide GDP ranking in 2 years.

Compared with these 3 economies, India's position in terms of forex position and currency stability also seems to be promising. While India is the major gainer of oil price crash as it imports over 2/3rd of its oil requirements, Russia's oil exports accounted for 2/3rd of its total exports in 2013. As oil price fell 57% from its last year peak, Russia's ruble fell 41% against the dollar in 2014. While rupee exchange rate fell mere 2%, euro fell 12% and Brazilian real fell 11% in 2014.

On forex reserves front, India's forex reserves stand at $319 billion as compared to about $142 billion held by Italy. Russia started the year 2014 with about $510 billion of forex reserves, but lost about $110 billion mainly by trying to support its currency by selling dollar aggressively in the domestic markets. While Russia holds about $386 billion, Brazil stands with about $375 billion of forex reserves. There are chances of Russia losing a lot more forex reserves due to severe recession expected and Brazil may not be able to add much to its reserves due to poor economic growth in 2015.

However, India has a fair chance of moving up in the ladder of forex reserves as well and thereby, maintain relatively better stability in its currency. Oil price crash can save about $50 billion in 2015. The RBI has already purchased about $22 billion of dollar from the open market during the first 8 months of FY2015. India can easily shore up forex reserves by another $75 billion in next two years and thereby beat all 3 economies. India moving up 3 notch in one go is likely to aid strong FII investments at the cost of Russia and Brazil in next two years. Hence, India is set for the continuation of structural bull run for the next two years.