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A growth bet on India?

Christine St Anne  |  23 May 2014Text size  Decrease  Increase  |  

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Christine St Anne is Morningstar's online editor.


Morningstar's silver-rated Platinum Asia Fund [9894] beat the market benchmark, according to its December 2013 quarterly note.

The fund, which has a 20 per cent exposure to India, was up 10 per cent.

Besides India's improving current account deficit and stabilised rupee, Platinum portfolio managers Andrew Clifford and Joseph Lai said market optimism had increased due to a possible victory by the Bharatiya Janata Party (BJP), led by Narendra Modi.

Modi was previously the chief minister of the "economically vibrant state of Gujarat" and is expected to "improve the economic prospects for the nation".

Fast forward five months and Modi's BJP has secured a landslide victory with a full majority -- the first time in 30 years that Indians have voted for a single party.

Modi's story is the quintessential tale of Indian success. The son of a tea vendor, Modi has had a solid and successful political career. He transformed Gujarat into one of the best-performing states in India.

The BJP win clearly illustrates the pro-growth and pro-jobs mandate that has been the focus of Modi's campaign, according to Morningstar India's director of fund research Niranjan Risbood.

"Modi has done wonders in Gujarat, making it one of the fastest-growing states in India with improving infrastructure facilities in power, water and roads. A lot of industries now prefer to move to Gujarat, thus creating employment for the youth," Risbood says.

The big question is whether Modi can replicate the remarkable success in Gujarat across the vast number of other Indian states and bring the country on to a sustainable growth track.

"I would be cautiously optimistic. Modi has promised to cut the amount of red tape for businesses operating in India and streamline the large number of outstanding infrastructure and industrial projects," Ibbotson Associates Australia senior portfolio manager Nimalan Govender says.

"While India is a united nation, its government remains decentralised and rapid change is unlikely. State governments have often delayed the national government's plans. The large mandate offered to Modi should encourage greater cooperation between state and national government," he says.

For Risbood, the Indian economic growth story of the past decade was really focused on three main pillars:

1) Consumption -- based on a rising young population and the rising urbanization of India;

2) Infrastructure -- mainly to do with new infrastructure projects in roads, ports, water supply, power and telecommunications; and

3) Exports -- mainly focused on the outsourcing-driven IT services and Indian pharmaceutical industries.

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