When it comes to emerging markets, China invariably seems to be the focus of attention, but the country to watch in 2012 is India, according to Edward Bland, Head of Investment Research at Duncan Lawrie Private Bank…
We are keen on emerging markets, especially India, because they offer the best prospects for the long-term equity investor. The effect on India from the continuing crisis in the Eurozone is likely to be less pronounced than on other Asian economies, including China, as the Indian economy is less dependent on exports than its neighbours. Currently I see India as a contrarian buying opportunity for investors.
Despite the economic malaise in Europe and the slowdown in the US, I expect economic growth in India to be around 7.5 per cent in 2012 and 8.1 per cent in 2013. That compares to 10 per cent growth in 2010. Even if these projected numbers are revised downwards, they comfortably outstrip the growth expected in the developed world.
India is building much needed infrastructure and investing heavily in capital projects. Critically and looking longer-term, India’s greatest potential comes in the form of demographics, and a burgeoning young workforce. India currently has a population of 1.12 billion, but by 2025 the country is expected to have more people than China.
Another key economic development is the introduction of a unique ID card system, which will allocate welfare payments efficiently, as well as being a means of paying workers. The entire Indian population may eventually be required to open a bank account, potentially unlocking a swathe of consumers with access to credit.
Duncan Lawrie offers clients the opportunity to invest in India via specialist emerging markets funds. Ivestors should look beyond the fact that the Indian Sensex index fell almost 25 per cent last year in local terms, making it one of the poorest performers amongst emerging markets, as fears over the sustainability of global economic growth combined with more specific concerns over the Indian economy triggered a capital flight homewards from foreign investors. Added to which, since October 2011, the Rupee has weakened significantly against the US Dollar. As a consequence India hasn’t benefitted from the knock on impact of the moderation in oil prices.
In the long term I believe that India and other emerging markets will deliver the best returns for investors. The truth is that in the West, growth is not going to match what we have seen in recent decades. At Duncan Lawrie, we have a significant commitment to emerging markets, and believe that India will be at the forefront of their superior performance.