“India is not simply emerging,” US President Barack Obama told the Indian parliament in November 2010; “India has emerged.” That’s hard to comprehend when stuck on a jam-packed, congested street in the middle of India in the steaming heat four years later. On a recent trip to India, I was able to get a bird’s eye view of the country and find out exactly where the sentiment lies regarding its future and if it has really emerged.
It’s not just the cuisine that has kept an appetite for India over the past year but the heightened political tension and need for confidence in the Indian economy.
Although some believe the economy has now firmly seen the bottom, which we agree with, there is a sense of disappointment as some people expected more progress to have been made despite Narendra Modi only being sworn into office at the end of May.
The market as we well know can be fickle. In reality, while things seem to be in a bit of a hiatus post the election there have been changes taking place. Modi has been busy consolidating both his government and the Bharatiya Janata Party (BJP), removing or changing old (and quite often inefficient) decision making structures and replacing them with new and more streamlined structures that will make it more effective to issue his government’s reform initiatives. One must not forget that there will be state elections in the coming months and Modi will likely want to ensure that he does well in these before embarking on key reform measures, many of which even he admits could be fairly unpopular.
With a new governor of the Reserve Bank of India (RBI), Raghuram Rajan, the credibility of the RBI also looks to be in good hands, but only time will tell to what extent the country can benefit from this. Bond valuations, thanks to elevated inflation and the RBI’s prudent policy stance, remain attractive, though it can be difficult to access for investors not familiar with India’s complicated capital market regulations. Similarly equities have already priced in a lot of the positive election news and are therefore not as cheap as they were at the start of the year. However on the plus side the market is not short of a number of well-run companies that have the potential to capitalise on a recovery in the country’s growth and favourable demographics.
Even if Modi is only half successful in the coming years, there is tremendous potential for both private domestic and foreign investment to pick-up. Although it is very early days the future does look brighter.
Kenneth Akintewe is senior investment manager at Aberdeen Asset Management