Thursday, April 19, 2007

Why India is “the investment story of the century”

Excerpts of an interesting article published in Moneyweek on the investment scenario in India.

After October's 11% correction, investors are wondering whether it's safe to jump back in to India. In valuation terms at least, the market looks reasonable on a prospective p/e of 15, below its long-term average, according to Jacqueline Aldhous of Forsyth Partners.

But the key point to remember is that while there is always a risk of further slides, trying to time downswings means investors will miss out on “a slice of a secular bull market” that could run for 20 to 30 years, says David Fuller on

The long-term story is certainly compelling. Aldhous points out that, thanks to India's highly educated and English-speaking population, the country is growing its presence in key global service industries, such as IT and pharmaceuticals.

But perhaps the most encouraging part of the story, says Stephen Roach of Morgan Stanley, is the potential for a strong long-term boost to consumption - a crucial prerequisite for sustainable growth and a feature lacking in most of the developing world, which depends largely on exports.

Private consumption already accounts for 64% of Indian GDP, and with banks concentrating on mortgage and credit-card offerings and rural reform set to boost real incomes, consumption could rise even further from here.

India has the “balanced growth foundation that China would die for”: China's growth is skewed towards exports and fixed investment, but India, says Fuller, is “the investment story of the century”.


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