India- jewel in the Asian crown
We highlighted the potential of India in some detail in our emerging market research first published in January 2007, and have continued to recommend it since. Over the last year, the Indian stock market is the only major market to be up in value, quite an achievement.
Here we explore why India should be a growing part of your portfolio, and how best to build that exposure.
The demographic dividend
While most commentary focussed on China early in 2007, we were drawn to the remarkable demographic mix of India. Half the population of 1.2 billion is aged under 25, which represents 25% of the whole worlds under 25’s. This is what has been called the “demographic dividend” – though it will only be a dividend if these young people can be put to work, which also requires key education reforms.
Coping with the Crash of 2008
While concerns grew from early in 2008 about the ability of emerging markets to sidestep growing problems in the developed world, India stood out as being much less dependent on exports than China, and with strong internal demand.
India was not totally immune – international capital flows into India dried up – but mainstream India was not ruffled by faraway problems founded in Anglo Saxon debt and poorly regulated banking systems. This came out in an invaluable discussion with Avinash Vazirani, manager of the Jupiter India fund, sadly on the day in late November 2008 of the Mumbai massacre. Avinash had just returned from India and, probably uniquely for a major economy, he was struck by the confidence that he encountered, despite concerns of some exporters and their banks becoming more cautious about lending.
Election lays foundation for reform
More recently, the elections in India gave new impetus to the Indian stock market. Prior to the election it was feared that another indecisive result would mean another coalition, delaying still further the urgent need for reforms. When the Congress party enjoyed a stunning victory, with a mandate for change and reform, the outlook for India, already positive, was transformed still further.
Be in no doubt that there are problems to be addressed in India. A multitude of reforms need to find their way through parliament, and huge expenditure is required on roads, housing and education, among other things.
But these problems, if solved, are the keys to unlocking the potential of India’s youthful population, and the electorate have handed a mandate to the governing Congress party.
Stock market soaring
The positive implications of the election result were instantly understood, and the Sensex stock market index rose rapidly, by 17% in just one day. Having now risen 80% from the low in March 2009, it can be argued that the market requires a breather, and, rather than lump sum investments, we are inclined to make a long term commitment to monthly contributions.
How and what to buy
Making monthly investments is very straightforward with a direct debit, and you can stop and re-start contributions whenever you wish without penalties. If you have lump sums we can arrange to drip this into your chosen funds, perhaps over 6-12 months - ask for details. We recommend Jupiter India.
(Taken from TopFunds Guide July 2009)