India slowdown starts to bottom out
The slowdown in India’s economic growth is bottoming out while declines in the stockmarket could provide opportunities for investing, say emerging market investment specialists.
Data released last week showed India’s GDP grew just 5.3% in the first quarter of this year, the country’s lowest quarterly growth in nine years, and down from 9.2% in the same period last year.
Andrew Kenningham, a senior global economist at Capital Economics, attributes the poor figures to India’s manufacturing sector, which contracted slightly year-on-year, while mining and agricultural production were also weak. (article continues below)
On the back of this data, the rupee fell to an all-time low of Rs56.5 against the dollar while India’s main 30-share BSE index closed 1.71% lower at the end of Friday’s trading at 15,940.71 points.
Threadneedle’s Douglas Cairns, an investment specialist, Asia and emerging market equities, predicts India’s GDP will grow between 6.5% to 7% this year, and between 6.5% to 7.5% next year.
“Economic growth is bottoming out now. In the second half of this year and going into next year we will see numbers stabilise,” Cairns says.
Cairns says while many factors are working against India, such as the stalling of policy making and a decline in domestic infrastructure spending, India - which is a net importer of oil - is set to benefit from the current low oil prices, with Brent Crude down at $98 a barrel.
“There is very negative sentiment to India. The stockmarket is trading on 12.5x forward earnings, which is significantly below its historical forward earnings,” says Cairns.
“We are underweight India in Threadneedle Asia, but if newsflow improves Indian equities could be attractively valued.”
James Syme, a senior fund manager of JOHCM Global Emerging markets Opportunities Strategy, says the de-rating of Indian equities is providing opportunities to invest in “fantastic franchises”.
Syme, who holds a 10% position in India, a 3% overweight, says India is relatively unloved, and he will selectively increase on weakness.
“The problems of the global economy don’t affect India, which has its own problems,” Syme says. ” There are great businesses in India which are now trading at multiples of their previous prices,” he adds.
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