Make in India

In a recent article about Emerging Asia, we mentioned India as an area of special interest. Overall we like India and we see that it has the potential to be one of the best performers within Emerging Markets over the next 3 to 5 years. As a commodity taker, India tends to profit from lower commodity prices. It is benefitting from structural reforms, potential renewed investment cycle as well from a growing domestic demand.

But India is still a “chaotic democracy” where reforms need time. Overall the new government is doing the right things and is focusing on structural reforms. Our India specialist came back recently from a trip there and made the following notes compared to his last trip in February.

Urban consumption is doing all right, rural consumption is as yet weak and a significant upturn on the investment side is still some quarters away. A great deal of banks has troubles with non-performing and restructured loans.

The biggest difference is the mood of the investors which has changed from very positive to a cautious stance which we observe as a positive development. After all there has been a healthy reset of the unrealistically high expectations after Modi took over as prime minister. But very interesting is the positive mood of ordinary people. When you talk to cab drivers, waiters, employees in the factories, most of them speak very proudly of Prime Minister Modi and think that he will lead India into a better future.
“This is very different to most of my trips to India over the last 10 years where most of the times people were complaining about politics and politicians” says Jürgen Maier.
It also should give Mr. Modi the time for implementing structural reforms, which are hurting in the short term but are beneficial in the long-run.

At the end we think the emerging growth upturn in India, while being gradual, will be more sustainable, of better quality and with fewer imbalances compared with the unprecedented, but unsustainable, acceleration in 2003-08

He likes companies in the export oriented sectors like IT and Pharma agrichemical and complex chemical space. He focusses also on quality industrial domestic names which benefit from the “Make in India” campaign of the prime minister as well as from a potential uptick in the investment cycle in India in the coming years. Also the automotive industry is in focus where India is still very underpenetrated (only 3 out of 100 people currently own a car) and will see double digit growth numbers in the number of cars sold over the coming years.

Pioneers in Emerging Markets Equities since 1994
As a pioneer in Eastern Europe, Raiffeisen Capital Management* launched the first Emerging Europe equities fund in 1994.  Since then we gradually extended our competences and added India and China in 2000 and Southeast Asian countries in 2009. Today we successfully manage Global Emerging Markets offering to our investors’ local, regional and global funds. Our focus is bottom-up value investing.

* Raiffeisen Capital Management stands for Raiffeisen Kapitalanlage-Gesellschaft m.b.H.