India may be at start of three year bull run say specialist fund managers

20th May 2014

The Indian stock market should be one of the best performing markets of the next three years, says Andrew Swan, Manager of the BlackRock Asia Fund and the BlackRock’s Asia Special Situations Fund.

Mr Swan says: “The Indian government will need to move quickly with this election, prioritising areas which have been disrupting India’s growth story to date. We anticipate some bold actions to confront corruption and strong initiatives to overhaul the energy and industrials sectors.

“In the last 12 months the Indian currency has been under significant pressure with twin deficits. However, this is slowly improving and, in the last six months we have increased our exposure to domestic Indian cyclicals. The appointment of the new government will prompt an adjustment process in the economy and markets will likely be volatile as it seeks to understand the policies and how they will be implemented.

“We are confident, however, that the outlook for Indian corporate earnings is improving and, as such, Asian equities will improve as well. The Indian equity market is set to be an exciting hunting ground for investors and will be one of the best Asian markets over the next three to four years.”

Avinash Vazirani, manager of the Jupiter India Fund says it is a historic victory and that Modi basically had a one-point agenda, development.  The fund manager notes that Modi was backed by people from all backgrounds.  With an overwhelming majority, the BJP should be able to get things done.

“There will be a clear focus on infrastructure and development. Cutting red tape will be a priority. I am expecting a simplification of the tax system, an introduction of GST (the Indian VAT), which has been held up for years and a cut in capital gains tax and dividend tax. We should also expect privatisations, together with sales of government stakes in private companies.

“The BJP has said it is against “tax terrorism”, in reference to Vodafone and other cases.  In my view, they will deliver on that, and we should get back to a stage where companies will be able to plan ahead rather than depend on whims of government.”

He adds: “Modi does not have a magic wand. But many of these things are low-hanging fruit. They can be done by a clear and decisive leadership, which the country lacked and now has.

One of Modi’s biggest promises is that there will be continuous power, water and sanitation across the whole country. If he sorts out the power sector problems, he will have sorted out a significant proportion of the problems with public sector banks, and more of their funding could be devoted to infrastructure spending.

“We have to wait and see to get a true view of the state of the public finances. My own view is that they are not as bad as has been thought. Even though the fiscal deficit is likely to widen in the short term, it should come down quite quickly as economic growth re-accelerates. There is a wall of local money that is waiting to find a home. Locals have hardly participated in the stock market rally over the last year as most of the investing has been by foreign funds. In my view, we could be seeing the start of a bull run in Indian stocks that has the potential to last three or four years.”

 

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