Breaking free of the ‘fragile five’ misnomer

India was previously plagued by a high fiscal deficit, bad policy choices, high commodity prices, an extended credit cycle, high inflation and a weak currency. Now it has a credible and strong-willed central bank, a reform-minded government, and commodity price falls which are very beneficial to its terms of trade. We are increasingly confident that some of the major blockages for reform are in the process of being dismantled, and the government has already taken some bold steps, such as removing fuel subsidies.

In a market context, India has moved from one of the ‘fragile five’ to being highly favoured among emerging market investors, and near-term valuation multiples have moved to reflect investor optimism. We anticipate that some investor fatigue will be felt; however, over the longer term, India still looks very attractive, and is in the early stages of recovery from a cyclical downturn. Hence, current valuations are likely to be underestimating the profit upcycle for years to come and we think India will be one of the strongest equity markets in the world over the next five years.

Rob Marshall-Lee – Newton, a BNY Mellon company

India was previously plagued by a high fiscal deficit, bad policy choices, high commodity prices, an extended credit cycle, high inflation and a weak currency. Now it has a credible and strong-willed central bank, a reform-minded government, and commodity price falls which are very beneficial to its terms of trade. We are increasingly confident that some of the major blockages … read more

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Waiting for the outcome of India’s election

Who can be trusted to make sure the country’s economy is on the right track?

The country has done well in recent weeks in anticipation of a change in government but we think maybe there is too much optimism there. In India it is quite difficult for things to change quickly on the political front because of entrenched bureaucracy; it is a very cumbersome, chaotic country in many ways. We would like to see improvement in India, the potential there is potentially enormous if one day effective economic policy could be put in place and if corruption levels were to be reduced. It is something we continue to watch very closely. However, for the moment it remains a fairly trading-oriented market that generally looks quite expensive.

Jason Pidcock, Portfolio Manager, Newton.

The country has done well in recent weeks in anticipation of a change in government but we think maybe there is too much optimism there. In India it is quite difficult for things to change quickly on the political front because of entrenched bureaucracy; it is a very cumbersome, chaotic country in many ways. We would like to see improvement … read more

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