PA ANALYSIS: India's dire 2011 market performance should not put off investors
From PA ANALYSIS Jan 31 2012 BY: Gary Corcoran
, Group Editor
, Portfolio Adviser and International Adviser
Its poor absolute market performance and equally poor relative economic performance has dampened enthusiasm for India. However, this should lead to investment opportunities opening up not closing down.
A 20%-plus local currency loss for Indian equities in 2011 represents their worst performance in decades. It was also branded the most disappointing Bric nation by Goldman Sachs chairman Jim O’Neill, highlighting a poor record in productivity, foreign direct investment and reform. Rather than writing off the world’s most populous country, he says serious leadership is required to ensure India achieves China-style development.
On top of this, India’s growth estimates have declined in recent months, largely due to its high fiscal deficit, weak rupee and ongoing inflation fears.
But the prospects for the market in 2012 and beyond are far healthier than these headline-grabbing numbers would suggest.
What were previously full valuations have recently reversed and many managers are seeing better opportunities now than for some time. There are also positives on the macro front with tightening interest rates - predicted to be cut further - and monetary policy. Inflation too is expected to fall, to around 6.5% by the end of Q1.
Some fund houses are pinning hopes on the positives arising from weak equity performance with Barings, for example, recently launching an India equity fund for Ajay Argal citing “an opportunity for nimble investors, with valuations as low as they have been since late 2008”.
The long-term opportunity and biggest potential for India, as is being witnessed in China, comes from its demographics, particularly its burgeoning young workforce - in a decade, its population will be greater than China’s.
While not ignoring the risks that remain with an investment in India (its bureaucracy, a high fiscal deficit, weak rupee, ongoing inflation fears etc) the negative numbers that describe 2011 will not automatically follow through to frame 2012 and beyond. If investors can be both nimble and long-term, India is well worth a look.