Don’t give up on India

published 20 June 2008

India's sparkle is dimming, says FAZ.net. Stocks are down by 30% from January's record. The earnings growth outlook has darkened as growth is slowing and the central bank has raised interest rates to quell inflation, which is set to rise further now fuel subsidies have been cut. But while the market may be unappealing right now, Indian firms look well-placed over the longer term.

As Hugh Young of Aberdeen Asset Management says, the market spans IT, pharmaceuticals, manufacturing, banks and property. "No other emerging market has such breadth." Indian firms have "risen above" political unpredictability and have learnt "to navigate a full business cycle"; maintaining cash flow and keeping debt low is "second nature". Mark Dampier of Hargreaves Lansdown notes that India's highly profitable firms post returns on equity of up to 40%.

Meanwhile, some of the next generation of Indian firms, listed on Aim, are worth exploring now, says the Investors Chronicle. Among those it likes are Greenko (GKO), which runs clean energy projects, the Indian Film Company (IFC), and property group West Pioneer (WPR).