CISI: "India: Is The Growth Story Intact?"
Eoin Treacy's view I
participated in an invitation only panel discussion for the members of the Chartered
Institute for Securities & Investment focusing on India yesterday. Here
is a summary of some of the points addressed.
Growth
Outlook and Inflation - India's economy continues to grow strongly but inflation
has been stubbornly high. The point was made that a number of the main contributors
to high inflation are unlikely to be affected by higher interest rates. Agriculture
prices were highlighted as an example. India has a system of minimum price supports
for many basic food stuffs. The Congress Party, which forms part of the current
administration, sees itself as representing the rural poor. Minimum price supports
will be in the region of 17% higher this year than last which ensures a higher
food price despite the fact that this year's monsoon has been favourable and
food should be plentiful. Another panellist suggested that part of the reason
the government is in favour of allowing large international food retailers access
to the Indian market is because of the supply chain management and refrigeration
they would introduce.
Infrastructure
development is taking place. The cement sector is a notable outperformer with
Associated
Cement and Ultratech
Cement offering exposure to the domestic demand story. I made the point
that it was probably incorrect to compare India with China. In terms of infrastructure
development China is more like the USA, which has planned cities featuring a
grid system. India's development is more comparable to England's Industrial
revolution where private enterprise dominated in a less planned environment.
The fact that London has at least 6 hub railway stations rather than one central
station is an example of this type of development.
Stock
market performance: As with a number of other Asian markets consumer led sectors
are among the best performers in India. However these sectors represent a comparatively
small portion of the wide market. Therefore while the Nifty
Index, which is heavily weighted by banks and energy companies, has been trending
lower since late last year, the Consumer
Durables and Fast
Moving Consumer Goods sectors remain in relatively consistent uptrends.
While
a number of Indian companies have gained international fame in the pharmaceutical
and IT sectors, multinational companies with operations in India, offering exposure
to the domestic demand story are outperforming. Nestle
India, Siemens
India, Hindustan
Lever, GlaxoSmithKline
Healthcare, Colgate
Palmolive India are all outperforming the wider Indian market as well as
their respective parent companies.