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August 2017

Investment insights

India at 70

India celebrates its 70th birthday this month. On the 15 August 1947 the Union Jack was lowered and Jawaharlal Nehru, the first prime minister of India, raised the Indian national flag in Delhi and history was sealed.
 
A lot has changed since then. In 1947 Indian life expectancy was 32, now it is 68 and the economy has become the world’s seventh largest at $2 trillion. It’s still growing fast too. According to the IMF’s World Economic Outlook, the Indian economy grew by 6.6% in 2016, just a whisker behind China at 6.7%.
 
However, growth is never a straight line upwards and economies often pause for breath. This week news of an overall slowdown in economic growth and a drop in consumer prices led India’s central bank to lower its benchmark interest rate to a six-and-a-half year low, from 6.25% to 6%.
 
The Reserve Bank of India’s Monetary Policy Committee voted 4-2 to cut the rate. Inflation in India has fallen to a five-year low of 1.25% in the 12 months to June and the country’s gross domestic product grew just 6.1% in the first quarter of this year, which is its slowest pace since late 2014.
 
What’s more, the latest Purchasing Manager’s Index (PMI) figures for India’s services sector fell sharply last month following the introduction of the country’s first Goods and Services Tax (GST) on 1 July. Implementation of the new tax policy has sowed confusion among manufacturers over the pricing of their products, leading to a reduction in activity and slowing down the demand for services.
 
The PMI plunged from 53.1 to 45.9, leaving it at the lowest level since September 2013. PMIs measure changes in activity levels across a particular industry sector from one month to the next. Anything above 50 signals that activity levels are improving while a reading below that suggests they’re deteriorating.  A movement from positive territory to below 50 so quickly is very unusual.
 
Stepping away from the short-term noise, however, the long term outlook for India remains positive. Many investors highlight the country’s favourable demographics. The median age is just 27 and nearly 7 in 10 Indians are currently under the age of 35. However, this is only part of the story. Radical improvements in terms of per-person productivity due to capital investments and better technology will play an even more important role.
 
In PwC’s report The World in 2050 the consulting firm predicts that India’s economy will grow by about 4.9% per year from 2016 to 2050, with only 0.7% of that growth caused by increases in the population.
 
Alex Duffy, portfolio manager of Fidelity Emerging Markets Fund believes India is currently one of the ‘stand-out’ emerging markets. In particular, the attractiveness of the country’s financial and consumer sectors, driven by the growing wages of its over 1 billion population and Prime Minister Narendra Modi’s reform agenda, makes it an attractive proposition for investors.
 
Tax reform is the latest and largest part of Narendra Modi’s reforms which aim to promote growth and create a stable environment for economic development. The new Goods and Services Tax which attempts to unify each of the country’s 29 states and seven union territories under one tax system is bound to cause teething problems.
 
Some short-term disruption as businesses adapt to a new system should be expected, but longer term a reduction in logistics costs, brought about by the new tax regime, should boost productivity and enable Indian companies to realise efficiency gains.
As India turns 70, there are still plenty of reasons to believe it’s in relatively good health.
 
 
 

This document is issued by FIL Responsible Entity (Australia) Limited ABN 33 148 059 009, AFSL No. 409340 (“Fidelity Australia”). Fidelity Australia is a member of the FIL Limited group of companies commonly known as Fidelity International.

This document is intended for use by advisers and wholesale investors. Retail investors should not rely on any information in this document without first seeking advice from their financial adviser. You should consider these matters before acting on the information. You should also consider the relevant Product Disclosure Statements (“PDS”) for any Fidelity Australia product mentioned in this document before making any decision about whether to acquire the product. The PDS can be obtained by contacting Fidelity Australia on 1800 119 270 or by downloading it from our website at www.fidelity.com.au. Information stated herein about specific securities is subject to change. Any reference to specific securities should not be taken as a recommendation to buy, sell or hold these securities and may not represent actual holdings in the fund at the time of this viewing. While the information contained in this document has been prepared with reasonable care, no responsibility or liability is accepted for any errors or omissions or misstatements however caused. This document is intended as general information only. The document may not be reproduced or transmitted without prior written permission of Fidelity Australia. The issuer of Fidelity’s managed investment schemes is FIL Responsible Entity (Australia) Limited ABN 33 148 059 009. Reference to ($) are in Australian dollars unless stated otherwise.

©2017 FIL Responsible Entity (Australia) Limited. Fidelity, Fidelity International and the Fidelity International logo and F symbol are trademarks of FIL Limited.

 

 

This website is intended to provide general information only and has been prepared without taking into account your objectives, financial situation or needs. You should consider these matters before acting on the information and consider the relevant Product Disclosure Statement for any product named on this website before making an investment decision.

© 2017 FIL Responsible Entity (Australia) Limited ABN 33 148 059 009, AFSL No. 409340.
Fidelity, Fidelity International and the Fidelity International logo and F symbol are trademarks of FIL limited.

This document is issued by FIL Responsible Entity (Australia) Limited ABN 33 148 059 009, AFSL No. 409340 ("Fidelity Australia"). Fidelity Australia is a member of the FIL Limited group of companies commonly known as Fidelity International. Prior to making an investment decision retail investors should seek advice from their financial adviser. Please remember past performance is not a guide to the future. Investors should also obtain and consider the Product Disclosure Statements ("PDS") for the fund mentioned in this document. The PDS is available on www.fidelity.com.au or can be obtained by contacting Fidelity Australia on 1800 119 270. This document has been prepared without taking into account your objectives, financial situation or needs. You should consider such matters before acting on the information contained in this document. This document may include general commentary on market activity, industry or sector trends or other broad based economic or political conditions which should not be construed as investment advice. Information stated herein about specific securities is subject to change. Any reference to specific securities should not be construed as a recommendation to buy, sell or hold these securities. While the information contained in this document has been prepared with reasonable care no responsibility or liability is accepted for any errors or omissions or misstatements however caused. The document may not be reproduced or transmitted without prior written permission of Fidelity Australia. The issuer of Fidelity funds is FIL Responsible Entity (Australia) Limited ABN 33 148 059 009. References to ($) are in Australian dollars unless stated otherwise. © 2017 FIL Responsible Entity (Australia) Limited. Fidelity, Fidelity International, and the Fidelity International logo and F symbol are trademarks of FIL Limited.