Matthews Asia: India is a fertile environment for an investor

In an interview with Morningstar, Robert Horrocks, Chief Investment Officer of Matthews Asia, the largest dedicated Asia-only investment firm headquartered in Westborough, MA, discussed the investment climate in India with senior editor Emma Wall.

Key takeaways from the interview:

On whether India has lived up to the investment hype under Prime Minister Modi

Horrocks: India has done very well apart from the last year or 18 months or so. But yes, I think, a lot of this was focused on Modi. But you got to remember he is the head of a central part of the government and he has to contend with all the states and the local governments. And that often means things move a little more slowly than you’d like.

On whether there is greater link between politics and markets in emerging markets as opposed to developed markets where the two things can be less connected

Horrocks: The reason for the connection between politics and the economy and the markets in India in particular is they are where China was 20 years ago. They need to build up the infrastructure. These are the things that governments are supposedly doing very well. So, that’s the reason for the linkage.

On the factors that will predict India’s stock market will deliver

Horrocks: Modi has done some things very well indeed. He has put in place a demonetization which I think I would said this would have had a much more detrimental impact on the economy in the short term. He has done some changes to the legal infrastructure to make bankruptcy law a little bit more clear. But these are things that take time.

The other thing I would mention is the achievements of the central bank. India used to be a high inflation economy. It was spending more than it saved. And the actions of the central [bank] over the last five years have brought that core inflation rate right down to a level where India’s savings are now pretty much able to mobilize all the investment it needs in the economy. The inflation rate is very reasonable even for a developed nation. So, it’s not just Modi. India has done quite a few things right.

On the greatest opportunities for an Asian investor

Horrocks: You still have to focus on the management of the business, you still have to look at the businesses that allocate capital properly. One of the issues with India at the moment is the fact that capital is scarce relative to other countries in the region. So, companies have to retain that capital themselves. That means you are putting a greater degree of trust in the management that they are going to look after that for you. So, that’s really the key. But India is a market [where] there’s opportunities across kinds of sectors. So, it’s quite a fertile environment for an investor there.

I would say the one element of caution I would have about India at the moment is the valuations. It is one of the more expensive markets in the region. You are right that a lot of hope surrounds Modi and the government and that’s been priced in a little bit to the market. So, you just have to be cautious and just pick your spots carefully.

But I do think corporate profit growth is still going to be pretty decent over the next few years.

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Posted on by Gunjan Bagla
Gunjan Bagla
California-based management consultant Gunjan Bagla runs Amritt, a consulting firm helping American companies to succeed in India. Amritt is the trusted advisor for India market research, India business development, India market entry, Global Engineering, Global Technology Scouting, India R&D and Open Innovation. Gunjan is author of "Business in 21st Century India: How to Profit Today from Tomorrow’s Most Exciting Market" (Hachette Book Group, 2008), Amazon's top rated title on the subject. He has appeared as the India Expert on BBC Television, Bloomberg TV, Fox Cable Business and has been quoted in the New York Times, the Los Angeles Times, the Hollywood Reporter and Business Week for his expertise on India.

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