Data points to shallow recovery for India, F&C’s Mahtani says

Sam Mahtani, fund manager at F&C Global Emerging Markets Portfolio, provides his view following Q2 GDP figures recently released on India.

The Indian government released economic data today showing the Indian economy grew by 4.8% year on year in the three months to the end of September 2013, compared to 4.4% year on year in the previous quarter. This is in line with our expectations and supports our view of a shallow recovery taking place in India helped by a pick-up in exports and a stronger rural economy as heavy monsoon rains boost agricultural output.

Our base case is that the economy will grow by 4.7% for the financial year to March 2014 and then 5.2% for the year to March 2015. Over the past two years growth in the Indian economy has decelerated from growth rates of above 8% per annum as a consequence of high interest rates and inflation and a lack on investment.

What we are seeing now are some initial, albeit fragile, signs of recovery. For the recovery to take hold, we believe that policy-makers in India will need to push forward with medium to long-term reforms. However, we expect that only a limited number of reforms will be implemented before the national elections take place in May 2014. Tackling some key reforms must be the focus of the new government that comes in.

We continue to find a number of companies to invest in India and remain positive on the outlook for Indian stocks. Our focus continues to be on high-quality companies with good medium-term prospects such as ICICI Bank, HDFC Bank and Tata Consultancy Services. Consumption in India is an attractive long-term theme and we are playing this through ITC. Another interesting long-term growth story is the oil & gas exploration company Cairn India.


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