28.02.2012


Dhawal Mehta

Portfolio Manager

Reliance Asset Management (Singapore) Pte. Ltd.

Set to soon become the world’s third-largest economy and boasting long-term fundamentals underlining its status as a rising global economic superpower, there is a wealth of investment opportunities in India. Investing in Indian equity and bond markets, the WIOF India Performance Fund offers the chance to invest in one of the fastest-growing and strongest economies in the world.

 

RISING POWER

India has in the past often been portrayed as a country wracked with problems such as poverty, poor infrastructure, power and water shortages, corruption and stifling bureaucracy. But the reality is that the country has transformed in recent years, and is now a rising global economic superpower. Since reforms in the 1990s which went a long way to ridding India of excessive regulation and protectionism, growth has accelerated and a range of factors is now driving an economy which economic surveys have predicted to become the third largest in the world in purchasing power parity (PPP) terms by 2015.

The key drivers of this growth include:

  • Rising income, an expanding and increasingly affluent middle class and increasing job opportunities which are driving domestic consumption, creating a healthy domestic market filled with investment opportunities.
  • A stabilising political outlook with what is India’s strongest government for 20 years focusing increasingly on development and reforms, leading to increased FDI, development of financial markets and trillions of USD of planned infrastructure projects.
  • Positive long-term economic growth prospects with various surveys suggesting GDP growth of between 7% and 9% annually up to 2016.
  • Strong employment perspectives with a total available workforce of 750 million people and 13 million people entering India’s urban workforce each year.

 

STANDING OUT

India’s growing status in the global economy is underlined by how well it compares to other emerging market economies. Economic indicators for debt, GDP growth rates and savings are encouraging while India’s equity market offers greater stability than those of some other emerging markets because of its lower dependence on commodities.

 

Indian economy to be third largest (PPP terms) by 2015

Source: IMF, RBI, Enam Research

 

India’s demographics are also one of its biggest economic advantages.  India has one of the world’s youngest populations with a median age of 25 years while 63% of the population is of working age (between 15 and 64). India’s demographic profile is similar to that of the US in the baby boomer era and China in the 1990’s, suggesting India will soon witness a huge structural spurt in consumption growth.

 

Indian working population (aged 15-64) development

Source : NCAER, RBI, ENAM Research

 

The economic slowdown in developed nations and subsequent drop in demand has also highlighted the benefits of India’s economic orientation to its domestic market.  China, for instance, is now focused on a rebalancing of its growth dynamic – moving away from exports and investment and more toward an Indian-style consumer-led model. At the same time, China is aspiring to match India’s progress on reforms. India currently has scores of world-class companies, well-developed capital markets, a modern banking system, and a deeply entrenched rule of law – all areas in which some other emerging markets are lacking.

OUTLOOK

Indian markets had a tough year in 2011. The currency hit a new low while the equity market was among the worst performers globally. Macro concerns, including rising inflation and interest rates, decelerating growth, policy paralysis and local currency weakness, dominated the market. But there are many positives going forward in 2012. The central bank has signalled the rate tightening cycle is over while inflation is beginning to ease. Domestic consumption, which is central to India’s long-term economic story and which accounts for 70% of Indian GDP, remains resilient. It is supported by factors like favourable demographics, a growing middle class, low penetration etc, which are fairly secular in nature. This suggests the current economic slowdown is largely cyclical in nature and can be corrected by a combination of lowering rates and creating a policy structure that will enable private enterprise to invest in manufacturing and infrastructure creation. A current lack of political leadership, especially on issues connected with policymaking, is dealing a serious blow to both corporate sector and investor confidence. But things should take a turn for the better on this front and, encouragingly, the government has recently made some important policy announcements. For equities, after a 35% fall in 2011, the odds favour a bounce. But positive momentum for the market will depend on what the government delivers in terms of policy. Valuations, particularly in the mid and small cap segment, are also at very attractive levels and any ‘resolution’ to the macro issues outlined above could lead to a reasonable rally. The biggest market risk remains a continuation of the current political logjam. This would prompt outflows from India, damaging the economy, currency and equity markets. Meanwhile, the effect on the market of global liquidity and news flows should not be ignored.

 

INVESTMENT ADVISOR

The Fund investment advisor is Reliance Asset Management (Singapore) Pte. Ltd. (RAMS) which is a subsidiary of Reliance Capital Asset Management Limited, the largest asset management company in India in terms of assets under management.  The Portfolio Manager of the fund is Mr. Dhawal Mehta who has more than 17 years of experience in Indian equities.

 

IMPORTANT NOTE: This report has been prepared for information only, and it does not represent an offer to purchase or subscribe to shares. World Investment Opportunities Funds (“WIOF”) is registered on the official list of collective investment undertakings pursuant to part I of the Luxembourg law of 20th December 2002 on collective investment undertakings as an open-ended investment company. WIOF believes that the information is correct at the date of production while obtained from carefully selected sources considered to be reliable. No warranty or representation is given to this effect and no liability can be assumed for the correctness or accuracy of the given information which may be subject to change at any time, without notice. Past performance provides neither a guarantee, nor an indication of future performance. Value of the shares and return they generate can fall as well as rise. Currency fluctuations, either up or down, may also affect value of the investment. Due to continuing market volatility and exchange rate fluctuations, the performance may be subject to significant changes over a short-term period. Investors should be aware that shares in the financial instruments entail investment risks, including the possible loss of the invested capital. Performance is usually calculated on the basis of the relevant NAV unless stated otherwise. Performance shown does not take account of any fees and costs associated with subscribing or redeeming shares. It is assumed that all dividends were reinvested. WIOF prospectus is available and may be obtained through www.1cornhill.com. Before investing in any WIOF Sub-fund(s) investors should contact their financial adviser / legal adviser / tax adviser and refer to all relevant documents relating to the WIOF and its particular Sub-fund(s), such as the latest annual report and prospectus that specify the particular risks associated with the Sub-fund, together with any specific restrictions applying, and the basis of dealing. In the event investors choose not to seek advice from a financial adviser / legal adviser / tax adviser, they should consider whether the WIOF is a suitable investment for them.