India: still the best bet in Asia?

When India’s prime minister, Narendra Modi, came to power in May 2014, his victory propelled the stockmarket to a new record. But now his honeymoon is well and truly over.

When India's prime minister, Narendra Modi, came to power in May 2014, his victory propelled the stockmarket to a new record. But now his honeymoon is well and truly over. Hopes that the "reform-minded" leader "could offer protection against a worsening global sell-off have evaporated", say David Keohane and James Crabtree in the FT. Mumbai's Sensex index last month dipped below the 24,000 mark for the first time since he was elected.

But the gloom looks overdone. For starters, after several turbulent years, a gradual recovery is on the cards. The rupee has stabilised as the current-account deficit has fallen. Inflation has been brought under control, giving the central bank scope for recent interest-rate cuts.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

The government is easing up on its fiscal squeeze. Meanwhile, as the FT points out, "India is not burdened with the large dollar-denominated debts weighing on many emerging markets", and it imports its energy, so falling oil prices provide a boost. The International Monetary Fund is pencilling in growth of 7.5%this year, the fastest of any large economy.

Investors still worry that structural reforms have stalled. In particular, the attempted replacement of an array of state taxes with a national goods and sales tax (GST) has been blocked in the upper house of parliament. But just as investors were too euphoric when he took power, theyare too pessimistic now, says Christopher Wood of CLSA. The fashionable view that nothing is happeningunder Modi is "very wrong".

Advertisement
Advertisement - Article continues below

The government has cut food-related subsidies, tempering rural wage growth and inflation. A fiscal federalist, Modi has given states more spending power in a bid to "encourage development politics at the state level" in the hope that more states will emulate the success of Gujarat during his 13-year tenure there. The government also appears to be gearing up to tackle bad loans in banks and the power sector.

Meanwhile, state elections this year could increase the government's presence in the upper house, allowing it to implement the national GST, says Morgan Stanley. And with its young population, growing middle class and strong foothold in service industries, the long-term outlook remains auspicious. Overall, India is the "best house in a bad neighbourhood". One way to invest is the Aberdeen New India investment trust (LSE: NII), which is on a discount to net asset value of 12.3%.

Advertisement

Recommended

Visit/investments/stockmarkets/600688/bullish-investors-return-to-emerging-markets
Stockmarkets

Bullish investors return to emerging markets

The ink had barely dried on the US-China trade deal before the bulls began pouring into emerging markets.
27 Jan 2020
Visit/519872/beware-the-hidden-risks-when-investing-in-emerging-markets
Investment strategy

Beware the hidden risks when investing in emerging markets

Emerging markets look cheap compared with developed countries, but earnings may be less trustworthy.
23 Dec 2019
Visit/519858/how-long-can-the-good-times-roll
Economy

How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019
Visit/517395/emerging-markets-buy-when-the-news-is-bad
Emerging markets

Emerging markets: buy when the news is bad

Emerging markets are being squeezed by local turmoil and by more general factors. But bad news can spell opportunity for investors.
5 Nov 2019

Most Popular

Visit/investments/property/601081/three-things-matter-for-the-uk-housing-market-now-and
Property

Three things matter for the UK housing market now – and “location” isn’t one of them

The UK housing market is frozen. And when it does eventually thaw out, the traditional factors that drive prices will no longer apply. The day of reck…
1 Apr 2020
Visit/investments/property/601065/what-does-the-coronavirus-crisis-mean-for-uk-house-prices
Property

What does the coronavirus crisis mean for UK house prices?

With the whole country in lockdown, the UK property market is closed for business. John Stepek looks at what that means for UK house prices, housebuil…
27 Mar 2020
Visit/investments/stockmarkets/601101/has-the-stockmarket-hit-rock-bottom-yet
Stockmarkets

Has the stockmarket hit rock bottom yet?

The world's stockmarkets continue on their wild and disorientating rollercoaster ride. Investors are still gripped by fear. So, asks John Stepek, have…
2 Apr 2020
Visit/investments/commodities/energy/oil/601107/oil-shoots-higher-have-we-seen-the-bottom-for-the-big-oil
Oil

Oil shoots higher – have we seen the bottom for the big oil companies?

Just a few days ago everyone was worried about negative oil prices. Now, the market has turned upwards. John Stepek explains what’s behind the rise an…
3 Apr 2020