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India: Is it time to invest in the fastest growing economy?
December 7, 2015

An update on India's latest GDP and its impact on creating an attractive investment opportunity.  


Author : iFAST Research



 India: Is it time to invest in the fastest growing economy?

We are living in a competitive world, wherein the two most populated countries are contesting for the title of “The World’s fastest growing Economy”. In the World Economic Outlook, October 2015, IMF has forecasted that India will be the fastest growing economy in the world in the two consecutive years i.e. 2015 and 2016 registering a growth of 7.3% and 7.5% surpassing China which is expected to grow by 6.8% and 6.3% respectively.

To put things into perspective, let us look at how all the major economies have grown over the last 4 quarters.

Country Dec-14 Mar-15 Jun-15 Sep-15
India 6.60 7.50 7.10 7.40
China 7.20 7.00 7.00 6.90
Indonesia 5.01 4.72 4.67 4.73
Malaysia 5.70 5.60 4.90 4.70
Thailand  2.10 3.00 2.80 2.90
South Korea 2.70 2.50 2.20 2.70
Australia 2.20 2.10 1.90 2.50
Hong Kong 2.40 2.40 2.80 2.30
USA 2.50 2.90 2.70 2.20
Singapore 2.10 2.70 2.00 1.90
Europe 0.90 1.20 1.50 1.60
Japan -0.90 -0.80 1.00 1.00
Taiwan 3.47 3.84 0.52 -0.63
Russia 0.40 -2.20 -4.60 -4.10
Brazil -0.68 -2.02 -3.00 -4.45
Source: Bloomberg

As per the Quarterly Estimate of GDP for the second quarter (September-July, 2015-16), India grew by 7.4% vis-a-vis 7.1% in the previous quarter. On the other hand, China grew by 6.9% in the same quarter. The different sectors contribution to the GDP is given below.

Component YoY Growth %
Sep-15 Jun-15 Mar-15 Dec-14 Sep-14 Jun-14
Agriculture 2.2 1.90 -1.4 -1.1 2.1 2.6
Construction 2.6 6.9 1.4 3.1 8.7 6.5
Electricity, Gas, Water Supply 6.7 3.2 4.2 8.7 8.7 10.1
Finance and Real Estate 9.7 8.9 10.2 13.3 13.5 9.3
Manufacturing 9.3 7.2 8.4 3.6 7.9 8.4
Mining & Quarrying 3.2 4 2.3 1.5 1.4 4.3
Public Expenditure 4.7 2.7 0.1 19.7 7.1 2.8
Trade, Hotels & Transport 10.6 12.8 14.1 7.4 8.9 12.1
GDP QoQ 7.4 7.1 7.5 6.6 8.4 6.7
Source: Bloomberg

 

It is very clear from this table that the manufacturing sector has started accelerating and this is a positive sign for the Indian economy.

From the point of view of investors, although India currently looks expensive, the FY17 PE is attractive and this, along with the improving macro-economic parameters should give confidence to investors to start taking an exposure into Indian markets.

Country (Index) P/E Yr 2015 P/E Yr 2016 P/E Yr 2017 Earnings Earnings
Growth 2015 (%) Growth 2016 (%)
USA (S&P 500) 17.7 16.2 14.4 -1.30% 9.00%
Europe (DJ Stoxx 600) 16.4 15.4 13.8 5.90% 6.80%
Japan (Nikkei 225)* 19.2 17.4 16 13.20% 10.40%
Emerging Markets (MSCI EM) 12.3 11 9.8 -12.10% 11.40%
Asia ex Japan (MSCI Asia ex Japan) 12.5 11.4 10.4 -5.50% 9.20%
Singapore (STI) 12.6 12 11.2 -0.50% 5.10%
Hong Kong (HSI) 11.3 10.7 9.7 -6.40% 5.40%
Taiwan (Taiwan Weighted) 13 12.4 11.4 3.10% 4.80%
South Korea (KOSPI) 10.4 9.1 8.4 17.80% 14.40%
China (HS Mainland 100) 9.7 9.1 8.1 -6.50% 6.60%
Malaysia (KLCI) 16.4 15.1 14 -3.40% 8.90%
Thailand (SET Index) 15.4 13.2 11.8 -4.70% 16.20%
India (SENSEX) 17.5 14.5 12.3 -7.20% 20.70%
Indonesia (JCI) 17 14.7 12.7 -8.10% 15.20%
Russia (RTSI$) 6.6 6.1 5.3 -24.10% 9.00%
Brazil (IBOV) 13.4 10.8 8.5 7.30% 24.10%
Australia (S&P/ASX 200) 15.6 14.5 13.3 -6.70% 7.90%
NASDAQ 100 (Technology Heavy) 20 17.8 15.6 7.20% 12.80%
Source: iFAST compilations

India will definitely face volatility if the FED decides to hike the rate and the Indian government is not able to pass the major bills in the Parliament in its ongoing winter session. However, these changes will only be for a short while. We believe that as the government has already started spending on CAPEX and the RBI is vociferous about the fact that the banks need to transmit the rate cuts, it is only a matter of time before the earnings of India Inc. start showing an upward bias.


Disclaimer: iFAST and/or its content and research team’s licensed representatives may own or have positions in the mutual funds of any of the Asset Management Company mentioned or referred to in the article, and may from time to time add or dispose of, or be materially interested in any such. This article is not to be construed as an offer or solicitation for the subscription, purchase or sale of any mutual fund. No investment decision should be taken without first viewing a mutual fund's scheme information document including statement of additional information. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Investors should seek for professional investment, tax, and legal advice before making an investment or any other decision. Past performance and any forecast is not necessarily indicative of the future or likely performance of the mutual fund. The value of mutual funds and the income from them may fall as well as rise. Opinions expressed herein are subject to change without notice. Please read our disclaimer on the website.Please read our disclaimer in the website.



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