India among underinvested markets; in sweet spot: Deutsche
Many global investors are looking at India closely for investment opportunities.
India remains one of the most underinvested markets globally.
The Indian market is presently in a sweet spot compared to emerging market peers, because of its improving macro economic environment.
The autonomy given to te States over funds allotted should generate healthy competition among states in the coming days. now that they have greater autonomy over funds. This should augur well for the economy as a whole.
The renewed interets in India has a lot to do with the macro economic environment in India and the tremendous interest in India from investors who have been involved with India but also those investors who have not been involved with India for whom India is now on the map.
All of the ingredients are being laid right now and we can go through some of that whether that is the macro environment, the reform agenda, what is happening with the states, the current Budget, the level of FII interest, the Reserve Bank of India (RBI) Governor and he stands – if you put all those together it makes for very interesting environment and especially when put into a global context they aren’t that many places with all of the tick-boxes here all in the right direction.
When you put it into a global context let us look at what is happening in the US. You have a robust economy and economy growing at between 2-3 percent for this year and a rate environment that now begins to change under Governor Yellen which has been broadly signaled now and the only question is around the timing but it is between 2-3 percent growth that we seen in the US.
If you look at Europe, very much of interest to investors, you have a massive quantitative easing (QE) program out of the European Central Bank (ECB). The ECB over the next two years will buy in aggregate more than twice the supply of all European government bonds and hence you are saying European government bond rates at record lows and it is at many cases negative yields.
You then move to Asia-Pacific and you have three themes on the radar. One is clearly China, while growth in China has slowed down, we are still seeing growth at around 6.9-7 percent and reform agenda again there, that is very attracting investors to various sectors.
You have Japan a little different, away from structural reforms, Prime Minister Abe’s monetary policy agenda which has been favourably received by investors, the electorate likes it, the Bank of Japan (BoJ) likes it and the government likes it and that is driving Japan.
Then you come to India and it has a combination of all of those. You have a rate environment which is likely to be very accommodative for sometime. You have the reform agenda that China has which will drive a lot of growth in many sectors and at the state level and at the grass root level as well. Importantly, you have under investment from many global investors who have been watching India from the sidelines but haven’t gotten onto the bandwagon.
Presently on the minds of investors is very much how this massive capex that India needs will deploy through states and down to grass root. It is a very complex country, very large country, somewhat opaque to a traditional foreign investor. The Budget has gone some way to address this. So the fact that states now will receive more than 60 percent of the overall tax stake compared to slightly under 50 percent, it is a huge change and tells you how this government has been thinking about how to deploy that capex; so that is point one, it is just the size and magnitude of the tax stake that the states get.
Point number two would be just how that is run and devolving decision making to the states around where best to deploy that capital is very important. So, as an example, rural electrification, assigning those funds to Gujarat might make no sense given that 100 percent of Gujarat is already rural electrified, Gujarat might have better usage for those funds. So, leaving it to the states to make those decisions is important.
Thirdly, the third point is that there will be states who are very ready to deploy that size of capex quickly and have the decision making bodies and forums around that capex and there might be states who don’t. Interesting, you have an electorate now in India that is demanding a better quality of life and those states are able to deliver that through officially allocation of this capex will succeed. You will some healthy, nice competition between the states but it will be a race to the top in terms of improving the livelihood of India’s electorate.
Happy Investing
Source: Moneycontrol.com
Many global investors are looking at India closely for investment opportunities.
India remains one of the most underinvested markets globally.
The Indian market is presently in a sweet spot compared to emerging market peers, because of its improving macro economic environment.
The autonomy given to te States over funds allotted should generate healthy competition among states in the coming days. now that they have greater autonomy over funds. This should augur well for the economy as a whole.
The renewed interets in India has a lot to do with the macro economic environment in India and the tremendous interest in India from investors who have been involved with India but also those investors who have not been involved with India for whom India is now on the map.
All of the ingredients are being laid right now and we can go through some of that whether that is the macro environment, the reform agenda, what is happening with the states, the current Budget, the level of FII interest, the Reserve Bank of India (RBI) Governor and he stands – if you put all those together it makes for very interesting environment and especially when put into a global context they aren’t that many places with all of the tick-boxes here all in the right direction.
When you put it into a global context let us look at what is happening in the US. You have a robust economy and economy growing at between 2-3 percent for this year and a rate environment that now begins to change under Governor Yellen which has been broadly signaled now and the only question is around the timing but it is between 2-3 percent growth that we seen in the US.
If you look at Europe, very much of interest to investors, you have a massive quantitative easing (QE) program out of the European Central Bank (ECB). The ECB over the next two years will buy in aggregate more than twice the supply of all European government bonds and hence you are saying European government bond rates at record lows and it is at many cases negative yields.
You then move to Asia-Pacific and you have three themes on the radar. One is clearly China, while growth in China has slowed down, we are still seeing growth at around 6.9-7 percent and reform agenda again there, that is very attracting investors to various sectors.
You have Japan a little different, away from structural reforms, Prime Minister Abe’s monetary policy agenda which has been favourably received by investors, the electorate likes it, the Bank of Japan (BoJ) likes it and the government likes it and that is driving Japan.
Then you come to India and it has a combination of all of those. You have a rate environment which is likely to be very accommodative for sometime. You have the reform agenda that China has which will drive a lot of growth in many sectors and at the state level and at the grass root level as well. Importantly, you have under investment from many global investors who have been watching India from the sidelines but haven’t gotten onto the bandwagon.
Presently on the minds of investors is very much how this massive capex that India needs will deploy through states and down to grass root. It is a very complex country, very large country, somewhat opaque to a traditional foreign investor. The Budget has gone some way to address this. So the fact that states now will receive more than 60 percent of the overall tax stake compared to slightly under 50 percent, it is a huge change and tells you how this government has been thinking about how to deploy that capex; so that is point one, it is just the size and magnitude of the tax stake that the states get.
Point number two would be just how that is run and devolving decision making to the states around where best to deploy that capital is very important. So, as an example, rural electrification, assigning those funds to Gujarat might make no sense given that 100 percent of Gujarat is already rural electrified, Gujarat might have better usage for those funds. So, leaving it to the states to make those decisions is important.
Thirdly, the third point is that there will be states who are very ready to deploy that size of capex quickly and have the decision making bodies and forums around that capex and there might be states who don’t. Interesting, you have an electorate now in India that is demanding a better quality of life and those states are able to deliver that through officially allocation of this capex will succeed. You will some healthy, nice competition between the states but it will be a race to the top in terms of improving the livelihood of India’s electorate.
Happy Investing
Source: Moneycontrol.com
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