Beyond Bulls & Bears

Black India Ink

Given the lack of attention by a media obsessed with U.S. recession fears, an EU debt meltdown and the possibility of a Chinese “bubble,” investors can’t be blamed if they missed some good news courtesy of India. Speaking in a November 9 interview, Asian Equity CIO Sukumar Rajah says he thinks this emerging markets powerhouse is poised to be a steadfast source of robust long-term growth opportunities:

“India’s economy over the past decade has gathered speed in step with growth of the middle class, which currently comprises about 20 percent of the population and is expanding by about 15 percent every year.[1] This is due in part to expansion of the working age population, which accounts for rapid growth of the professional sector and powers infrastructure and manufacturing. Approximately 500 million working age people are expected to join the global labor pool over the next 10 years and one in three or four of those people will likely come from India.[2] This massive increase of Indian labor has the potential to create a lot of employment and further increase the size of the middle class.”      

The interesting thing about a growing middle class is that it’s generally linked to growing demand and consumption. The savings rate is improving, too, as per capita savings in India have increased and currently average more than 30 percent.[3] Domestic savings are projected as a primary source of funding for continuing development, and Rajah expects growth could accelerate over the next decade beyond the pace of the past 10 years.

Of course, India has not been immune to short-term market volatility, and one area that’s caused furrowed brows is inflation, which, following a 5 to 6 percent trend, seems to have peaked at 16 percent before receding to a more palatable 9 percent.[4] Says Rajah:

“Inflation is a serious concern. We had nine rate increases over the past 18 months and there is still some way to go before the central bank will be comfortable with the situation, but it has improved substantially. We think we have probably seen the last of the increases, and there’s potential for rate decreases in 2012.”

Another area of concern is the fact that this is an emerging market, and emerging markets have taken their share of hits over the past year. However, Rajah remains positive:

“The Indian economy is generally less correlated to global developments. The market has been volatile in the past largely because of inflows and outflows from foreigners, but most foreign investors now understand that India is not really correlated to global growth and that’s one of the reasons the Indian market has not been as volatile compared to some other emerging markets in the recent past.”

As the European debt drama continues to unfold it seems that short-term jolts will be inevitable, but one of the lessons Sukumar would have us learn is that those with the mettle to adhere to a longer-term view may, he thinks, find themselves on the happy side of the equation.   

Until next time, consider this from Sir John Templeton:

“The only investors who shouldn’t diversify are those who are right 100% of the time.”

[1]Source: Deutsch Bank Research, February 15, 2010

[2] Source: UN, IMF, Morgan Stanley Research, Sep 2011

[3] Source: CSO, Citigroup

[4] Source: CLSA. As of Sep 15 2011

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