Last week, the India and the US pulled closer together, with a toast to a new relationship. President Joe Biden emphasized the similarities between the two countries. “Two great nations, two great friends, and two great powers," he said.
It is a moment that the US Ambassador Eric Garcetti noted, "will go down in history as a new chapter." Modi’s visit was front-page news in the US, and USA Today declared, “For nearly a decade, Narendra Modi wasn’t allowed to set foot in the United States. But times, titles and political agendas change.”
The US displayed Modi's face in Times Square and lit up Niagara Falls in the tricolour, marking a major shift in trade relations. This change has been underway since FY19, when the US overtook China to become India’s largest trading partner for the first time.
In this week’s Analyticks,
- New best friends: How did the US emerge as India’s top trading partner?
- Screener: Companies beating analyst estimates, and set for high revenue growth in Q1FY24
US becomes India’s largest trading partner, as it imposes sanctions on China
Historically, China has been India’s top trading partner. But this changed after Donald Trump won the presidency in 2016. Trump was not a fan of China, and wanted to reduce US dependence on the country. In 2018, the Trump administration imposed trade sanctions on the Chinese, including investment restrictions and tariffs on products worth $60 billion.
The Americans started looking elsewhere in Asia for trade. And so for the first time in FY19 and FY20, the US replaced China as India’s top trading partner.
Under President Biden, trade barriers between the US and China have only increased. After Russia invaded Ukraine in 2022, the US imposed sanctions on several Chinese businesses for supplying Russian military networks.
In October 2022, the US also announced limits on the sale of new semiconductors to China, with the intention of slowing down its tech sector.
These events presented an opportunity for India to ramp up its trade with the US. As a result, the US has become India’s top trading partner in four out of the past five years. The economic slowdown in China has also impacted China’s trade.
India has a trade surplus with the US. But while the US is India's largest trading partner, this is not true the other way round - the US still has larger trading relationships with China, the EU, and its North American neighbours.
One goes east, the other goes west: India exports raw materials to China, diversified goods to the US
India has an unequal trade relationship with China. It mainly exports basic raw materials, and imports finished goods. In FY23, 50% of India’s imports from China were electrical machinery, nuclear reactors, and mechanical appliances, while 40% of India’s exports were raw materials.
However, it is a different story when it comes to US trade. India has a trade surplus of $28 billion with the US. India’s exports to the US are also more diverse, with a focus on finished goods such as pharmaceuticals, electrical machinery and parts.
Modi and Biden sign multi billion-dollar deals, but India needs to step up execution
PM Modi’s visit to the US comes at a time when Indian benchmark indices are hovering near their all-time highs. India’s economy is also in good shape, as it is among the fastest-growing economies, with zero recession possibility.
During the PM’s visit, Modi and Biden struck multibillion-dollar deals in areas such as semiconductors, critical minerals, technology, space cooperation, and defence.
In defence, Biden and Modi signed an agreement allowing General Electric to produce jet engines in India for Indian military aircraft, in partnership with Hindustan Aeronautics. India will also procure US-made armed MQ-9B SeaGuardian drones, amounting close to $3 billion.
India already imports high-value aircraft and spacecraft from the US. In FY23, the import value was $1,565.1 million and exports around $462.2 million. However, the new deal could change these numbers, with total trade increasing on the back of these agreeements.
In the semiconductor space, US chipmaker Micron Technology plans a $2.7 billion semiconductor testing and packaging unit in Gujarat. While Micron will contribute 30% of the investment, the remaining funding will come from the Indian government.
In electrical machinery and equipment, India has maintained a trade surplus with the US since FY20. As the US reduces its dependence on China in electronics, India is capturing some of that market share.
Modi’s meeting with tech CEOs like Satya Nadella, Sundar Pichai and Elon Musk also made headlines.
While Amazon committed to an additional $15 billion investment in India by 2030, Google pledged $10 billion to the India Digitization Fund, to accelerate the country's digital revolution.
Will we always be the 'country of the future'?
India has won some impressive new deals, but execution remains a daunting task. Problems like infrastructure gaps, delays in approvals and permits have long held us back - China works like a smoothly-oiled machine compared to India's creaky bureaucracy.
Apple, for instance, faced several issues while setting up operations in India, including challenges in finding local partners similar to its 150 component suppliers in China. Getting state labor law updated for iPhone factories required meetings with senior political figures in Karnataka and Tamil Nadu. To fast-track deals and improve execution, India must fix long-standing problems like poor port infrastructure, policy inconsistency, and British-era labour regulations.
The US-China trade war has given India the opportunity to rise as a prominent manufacturing power. India's US relationship also comes with less baggage: we have a trade surplus with the US, and unlike exports to China, exports to the US include finished goods. A rise in finished goods trade can help India move up the value chain, and improve its manufacturing ecosystem.
India's promising growth outlook, and a recovering US economy present a historical chance. But this promise for now, is still only half-complete. Some analysts remain skeptical of India being able to fix its problems. "India is the 'country of the future', with the future never arriving", Graham Allison wrote last week. It's about time we changed that.
Screener: Rising companies beating estimates and poised for high YoY revenue growth in Q1FY24
As Q1FY24 draws to a close, we take a look at stocks with the highest revenue YoY growth potential in the upcoming June quarter, according to Trendlyne’s Forecaster. This screener shows stocks that have beaten Forecaster estimates of revenue growth in Q4FY23, and are also set for further growth in revenue and net profit in Q1FY24.
The screener identifies 13 stocks from the Nifty 500 and one stock from the Nifty 50. It is dominated by stocks from the banking & finance, pharmaceuticals & biotechnology and general industrials sectors. Major stocks that appear in the screener are MTAR Technologies, Biocon, KPIT Technologies, Craftsman Automation, Bank of Baroda and Cummins India.
Trendlyne’s Forecaster estimates Biocon’s revenue to grow by 66.2% YoY in Q1FY24. The company saw a 56.7% YoY growth in revenue in Q4FY23, outperforming the biotechnology industry by 8.3 percentage points. This was helped by the Viataris deal, which more than doubled the revenue from the biosimilars business. Its net profit also improved by 31.3% YoY.
According to analysts, KPIT Technologies is expected to clock a revenue growth of 53.7% YoY in Q1FY24. The stock saw a 56.1% YoY growth in revenue in Q4FY23, outperforming the IT consulting & software industry by 37.5 percentage points. This improvement was driven by orders from big accounts (like Renault’s $100 million deal extension), new engagements and an increase in revenue from the mobility & autonomous segment. Its net profit increased by 41.5% YoY in the same quarter, which outperformed its industry’s net profit growth by 33.4 percentage points.
For Bank of Baroda, consensus estimates from analysts point to a revenue growth of 39.9% YoY in Q1FY24. The company’s revenue rose 41.8% YoY in Q4FY23, outperforming the banking industry by 9.9 percentage points. This was due to improving net interest margins (NIM) and lower credit costs.
You can find some popular screeners here.
Signing off this week,
The Trendlyne Team
