06-17-2006, 06:00 PM
<!--QuoteBegin-->QUOTE<!--QuoteEBegin--><b>Booking a passage to India</b>.
Investment Adviser; 4/24/2006
India has re-discovered its self confidence and the entrepreneurial spirit is freely flowing once again. This entrepreneurialism, in combination with some reform and a light-handed government, has led to single digit gross domestic product growth for the past few years. <b>It is the local economy that is driving growth, unlike China, which is more reliant on export-led growth</b>. This growth is driven by a consumption boom from the rapidly growing Indian middle class.
There is an important confluence of factors: in addition to this entrepreneurial flair pervading the economy, there is a hunger to be competitive through productivity. The knowledge and manufacturing bases are brimming with dynamism, private consumption is strong and driving GDP growth -" not exports -" and this creates more stability given that growth is not so reliant on global growth.
<b>Compelling </b>
It is a compelling picture. But how should the investment management industry respond to the India story? Nearby, we have China grabbing many of the corporate headlines, perhaps justifiably considering the extraordinary growth that has been witnessed. But perhaps an even more positive story is unfolding in India.
Certainly, the top-down (economic) and bottom-up (corporate) changes that have been propelling the Sensex, India's most widely followed equity index, has been sending out an extremely attractive message to investors. At the beginning of April it breached the 11,000 mark for the first time.
<b>Story </b>
Even if we acknowledge that the Indian story is a large and fast moving one, the investor is still faced with plenty of decisions about where to invest. The question that any investor in India has to ask themselves is: has India changed and if so, what price are they prepared to pay for this change?
In other words, is all the good news already priced into a stock market that has risen 150 per cent since the shock election result in early 2004? This spectacular growth needs to be understood through a careful analysis of what is happening on the ground in India.
India has the most attractive demographic profile in Asia, if not across the globe: 60 per cent of her population is aged below 30, and 100m people will be added to the 25 to 44 age group by 2009. The increase in the urban population alone between 2005 and 2015 is the same as adding 1.4 times the UK's population, so the demand for raw materials will remain robust for some time to come. In the past 12 months, India's population has grown by 20m. Consumer spending is growing at a rate of between 15 per cent to 25 per cent. 40m new mobile phones were bought in 2005. The list of statistics reflecting the consumer boom is impressive.
<b>Restructuring </b>
Corporate India is impressive, particularly in comparison with some other Asian corporate cultures. Indian companies have managements that speak English, respect the rule of law and understand the concept of the shareholder. These companies have undergone a significant amount of restructuring and rationalisation over the past 10 years. <b>The breadth, quality and sheer number of companies that are available for investment are bettered perhaps only by Japan. </b>But of course, like every other country in the world, careful stock selection is still paramount.
Although India has become known as a leading market for outsourcing with a heavy reliance on innovation in IT systems and services, this is possibly not the market that delivers most value for investors. <b>Instead, the emphasis should be on the domestic growth story in India, sectors such as financial services and retailing, where there has been massive growth and the stocks that benefit from the investment in the infrastructure by government, the road building projects and power grids. </b>
While a few of the positives have been highlighted and more could be mentioned, it must also be added that the picture is not entirely rosy. Poverty and illiteracy remain a huge problem. It is estimated anything from 25-35 per cent of the population live below the poverty line, on less than $1 a day.
<b>Infrastructure </b>
The other big issue facing India is its straining infrastructure system previously referred to. There is a lack of clear vision and a stark need for investment. Estimates suggest at least $60bn (AGBP34.4bn) of investment is needed over the next five years. <b>The economy could well be held back without this urgent spending, as there is already a significant demand-supply gap in power, roads, railways and ports. </b><i> {Medha Patkar will take care of this problem}</i>
So what price are we prepared to pay for this domestic Indian growth story? From a short-term perspective, the stock market by its own historical standards is looking expensive. Add to this a background of rising interest rates and slowing corporate profit growth and it is easy to argue that this is generally not a recipe for further short-term gains, so a certain amount of caution is warranted.
From an investment perspective and on a longer-term basis, it is a good idea to remain firmly in the bullish camp on India. Any short-term correction would provide an excellent buying opportunity for investors with a longer investment horizon and investment managers should be looking to add significantly to positions in this eventuality.
While the frenetic growth of the Indian equities market over the past two years may slow somewhat in 2006, the longer term view remains decidedly upbeat, with GDP growth in the region of 7 per cent over the next two years.
<b>Fundamentals</b>
The country's positive underlying economic fundamentals are gaining increasing attention among foreign investors, particularly from Japan, where a recently launched Indian investment fund attracted more than $750m (AGBP430m) in one morning. <b>The Indian situation is a long way from being played out. The long-term potential is still immense. </b>
Evidence for India's growing role in the global political and economic picture is also mounting, not least the recent accord signed by India and the US. Such moves add to the positive outlook for India as an investment region of choice for many shrewd investors and it should remain an important part of a competitive global investment portfolio.
<i>Jonathan Schiessl is investment manager for Ashburton Investment Management</i>
COPYRIGHT 2006 FT Business
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Investment Adviser; 4/24/2006
India has re-discovered its self confidence and the entrepreneurial spirit is freely flowing once again. This entrepreneurialism, in combination with some reform and a light-handed government, has led to single digit gross domestic product growth for the past few years. <b>It is the local economy that is driving growth, unlike China, which is more reliant on export-led growth</b>. This growth is driven by a consumption boom from the rapidly growing Indian middle class.
There is an important confluence of factors: in addition to this entrepreneurial flair pervading the economy, there is a hunger to be competitive through productivity. The knowledge and manufacturing bases are brimming with dynamism, private consumption is strong and driving GDP growth -" not exports -" and this creates more stability given that growth is not so reliant on global growth.
<b>Compelling </b>
It is a compelling picture. But how should the investment management industry respond to the India story? Nearby, we have China grabbing many of the corporate headlines, perhaps justifiably considering the extraordinary growth that has been witnessed. But perhaps an even more positive story is unfolding in India.
Certainly, the top-down (economic) and bottom-up (corporate) changes that have been propelling the Sensex, India's most widely followed equity index, has been sending out an extremely attractive message to investors. At the beginning of April it breached the 11,000 mark for the first time.
<b>Story </b>
Even if we acknowledge that the Indian story is a large and fast moving one, the investor is still faced with plenty of decisions about where to invest. The question that any investor in India has to ask themselves is: has India changed and if so, what price are they prepared to pay for this change?
In other words, is all the good news already priced into a stock market that has risen 150 per cent since the shock election result in early 2004? This spectacular growth needs to be understood through a careful analysis of what is happening on the ground in India.
India has the most attractive demographic profile in Asia, if not across the globe: 60 per cent of her population is aged below 30, and 100m people will be added to the 25 to 44 age group by 2009. The increase in the urban population alone between 2005 and 2015 is the same as adding 1.4 times the UK's population, so the demand for raw materials will remain robust for some time to come. In the past 12 months, India's population has grown by 20m. Consumer spending is growing at a rate of between 15 per cent to 25 per cent. 40m new mobile phones were bought in 2005. The list of statistics reflecting the consumer boom is impressive.
<b>Restructuring </b>
Corporate India is impressive, particularly in comparison with some other Asian corporate cultures. Indian companies have managements that speak English, respect the rule of law and understand the concept of the shareholder. These companies have undergone a significant amount of restructuring and rationalisation over the past 10 years. <b>The breadth, quality and sheer number of companies that are available for investment are bettered perhaps only by Japan. </b>But of course, like every other country in the world, careful stock selection is still paramount.
Although India has become known as a leading market for outsourcing with a heavy reliance on innovation in IT systems and services, this is possibly not the market that delivers most value for investors. <b>Instead, the emphasis should be on the domestic growth story in India, sectors such as financial services and retailing, where there has been massive growth and the stocks that benefit from the investment in the infrastructure by government, the road building projects and power grids. </b>
While a few of the positives have been highlighted and more could be mentioned, it must also be added that the picture is not entirely rosy. Poverty and illiteracy remain a huge problem. It is estimated anything from 25-35 per cent of the population live below the poverty line, on less than $1 a day.
<b>Infrastructure </b>
The other big issue facing India is its straining infrastructure system previously referred to. There is a lack of clear vision and a stark need for investment. Estimates suggest at least $60bn (AGBP34.4bn) of investment is needed over the next five years. <b>The economy could well be held back without this urgent spending, as there is already a significant demand-supply gap in power, roads, railways and ports. </b><i> {Medha Patkar will take care of this problem}</i>
So what price are we prepared to pay for this domestic Indian growth story? From a short-term perspective, the stock market by its own historical standards is looking expensive. Add to this a background of rising interest rates and slowing corporate profit growth and it is easy to argue that this is generally not a recipe for further short-term gains, so a certain amount of caution is warranted.
From an investment perspective and on a longer-term basis, it is a good idea to remain firmly in the bullish camp on India. Any short-term correction would provide an excellent buying opportunity for investors with a longer investment horizon and investment managers should be looking to add significantly to positions in this eventuality.
While the frenetic growth of the Indian equities market over the past two years may slow somewhat in 2006, the longer term view remains decidedly upbeat, with GDP growth in the region of 7 per cent over the next two years.
<b>Fundamentals</b>
The country's positive underlying economic fundamentals are gaining increasing attention among foreign investors, particularly from Japan, where a recently launched Indian investment fund attracted more than $750m (AGBP430m) in one morning. <b>The Indian situation is a long way from being played out. The long-term potential is still immense. </b>
Evidence for India's growing role in the global political and economic picture is also mounting, not least the recent accord signed by India and the US. Such moves add to the positive outlook for India as an investment region of choice for many shrewd investors and it should remain an important part of a competitive global investment portfolio.
<i>Jonathan Schiessl is investment manager for Ashburton Investment Management</i>
COPYRIGHT 2006 FT Business
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