4th June 2013
After a spell in the economic and stockmarket wilderness, India represents an increasingly attractive investment opportunity, according to the managers of JPMorgan Indian Investment Trust.
Rajendra Nair and Rukhshad Shroff say that government reforms should improve the prospects for the stock market, while inflation has moderated leaving scope for monetary easing.
Nair says: “The Indian government has made significant policy changes as GDP growth dipped to a decade low of 5% for 2012-13 [4.8% for the first quarter of 2013] compared with its 15-year average of 7.3% a year,” said Nair. “India had been suffering from political deadlock, which was having an adverse impact on the economy, with knock-on effects for Indian companies. We now feel an economic recovery is made more likely by the measures that have been undertaken thus far.
“Inflation in India has been stubbornly high, reaching a peak of more than 10% in 2010, but is now falling towards a more manageable level of 5%. Interest rates are still high at around 8%, but there is scope for an easing of monetary policy, and concerns about India’s current account deficit are starting to moderate.
Shroff says: “While there are not always parallels between economic and stockmarket performance, the signs for investors in Indian companies are also encouraging. Measures of valuing companies’ shares, such as price-to-earnings ratio and price-to-book value, are below their long-term averages, meaning shares can be bought relatively cheaply, while analysts expect strong growth in company earnings over the coming year. Given the current opportunity to buy growing companies at below-average valuations, we are optimistic that Indian equities have the potential to perform significantly better over the next few years than they have in the recent past.”