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Publication Date: February 3rd, 2023.
Last month we described how the growing middle class of India is poised to create the biggest demand shock in the emerging commodity supercycle – one that could rival the China led commodity supercycle in the early 2000s. If you haven’t read that blog we encourage you to do so, here.
In January we noted significantly more news and research coverage on India, not surprising as the India Nifty 50 stock market made new all-time highs in December while most global equity indexes sold off – an indication that India may be on a very different growth trajectory.
Over the last two years we have articulated what we believe are the two fundamental drivers of a commodity supercycle:
An extended period of underinvestment in supply.
A generational demand shock.
There are many examples of the underinvestment in supply, notably we have pointed to the decade of declining capex in the resource sector (see more here). Alongside, the green transition and associated trillions of dollars required in green infrastructure – from the concrete to build windmills to the copper for EVs – is a generational demand shock in our opinion.
In January one chart in particular grabbed our attention, and we can’t understate its significance. The surge in Indian capex and planned infrastructure spending – on the back of the noted decade of underinvestment in the resource sector, may supersede the green transition as the biggest driver of a commodity supercycle. After a four-year period of flat to moderate capex growth, India is set to double its 2023 capex from 2020 levels. See Table 1 below.
Table 1. The Surge in Capex and Infrastructure Spending in India
Last month’s blog concluded with the Chinese proverb “The best time to plant a tree was 20 years ago. The second-best time is now”. This month we note the Chinese proverb that “If you want to prosper, first build roads”[1]. Since Indian Prime Minister Modi's election win in 2014, India’s national highway network grew more than 50% longer[2]. And, as articulated in a Wall Street Journal article last fall, “You Can’t Build Roads Without Oil”.
Indian national road and highway development is just one example of the emerging demand shock that an undersupplied resource sector will face. India’s population stood at 1.417 billion at the end of last year, about 5 million more than China has reported[3]. Half of India’s people are under the age of 30, and the middle class of India is expected to be the largest by 2027, surpassing both China and the US[4].
The government of India is set to spend nearly 20% of its budget fiscal year 2023 on capital investments, the most in at least a decade[5]. From energies to metals to soft commodities, India is poised to consume a growing rate of an undersupplied commodity sector.
As we detailed last month, it is the growth of the middle class that drives commodity consumption, and all signs point to the growth of an Indian middle class that will surpass the Chinese 2000s, the American 1970s, and any previous.
As rules-based commodity traders we remain agnostic in our positioning. However, we believe the opportunities emerging are beyond what we experienced with the early 2000s commodity supercycle.
For more information contact our team at info@auspicecapital.com
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SOURCES:
[1] https://www2.deloitte.com/content/dam/insights/us/articles/za22330_consider-building-roads/DI_If-you-want-to-prosper-consider-building-roads.pdf
[2] https://www.bloomberg.com/news/features/2023-01-23/india-s-1-4-billion-population-could-become-world-economy-s-new-growth-engine
[3] https://www.macrotrends.net/countries/IND/india/population
[4] https://www.morganstanley.com/ideas/investment-opportunities-in-india
[5] https://www.bloomberg.com/news/features/2023-01-23/india-s-1-4-billion-population-could-become-world-economy-s-new-growth-engine