Fundamentals continue to drive growth in India

  • Corporate News
  • Saturday, 12 Oct 2019

Sukumar: We continue to retain a positive view on Indian equities.

Sukumar Rajah is Franklin Templeton Emerging Markets Equity senior managing director, director of portfolio management.

Based in Singapore, Sukumar is responsible for overseeing single country, regional and multi-country products, investment process development and enhancements in Asia, and he is lead portfolio manager of the Asian equity portfolios.

In addition, he is responsible for overseeing the India Equity group and is the lead portfolio manager of India-related funds and institutional accounts distributed outside of India.

StarBizWeek catches up with Sukumar who shares his outlook on the opportunities unfolding in India today, amidst the US-China trade war and the just-completed Indian general election.

What is the outlook on India at the moment? Is it really developing and what are its uniqueness?Despite the increased market volatility, we continue to retain a positive view on Indian equities. With the general election behind us, the market focus shifts to fundamentals such as earnings growth, inflation and fiscal prudence.

Fundamentals such as favourable demographics, infrastructure investment, urban consumption growth and increasing income levels continue to drive Indian growth. Macroeconomic indicators also remain stable, though to be watched, while select micro indicators show a slower growth trend. A major contributor to slowdown witnessed recently is the disruption caused to the financial sector as a part of the clean-up measures of the regulator.

We believe this is a temporary factor and expect the growth momentum to gradually recover in the next few quarters.Everyone talks about the rising middle-income population in China and its potential. What is the population of the middle-income class in India, and how do you see them shaping the Indian economy?India is one of the fastest growing major economies in the world. The country boasts of favourable demographics with 1.3 billion people, including a relatively young and working age population.

Moreover, with rising incomes, India’s middle-class population is expected to surpass that of the United States by 2030. Urbanisation is also expected to continue.

These trends have resulted in evolving consumption requirements with rising affluence also driving premiumisation. We expect to see demand for consumer staples and discretionary goods and services to rise as consumers spend more.

What are the major challenges faced by the Indian economy and industries?Risks related to global factors (such as trade tensions, US Federal Reserve policy, oil prices) remain.

A global growth slowdown could affect segments of the Indian economy that are more dependent on exports.

That said, rising domestic consumption has tilted India’s economy to be less reliant on the export sector, which makes India less vulnerable to adverse global factors, in our view.

Additionally, compared to other emerging markets, Indian equities are expected to show resilience to global trade concerns due to a reasonably robust macroeconomic situation and rising domestic liquidity.

Moreover, the diversification of global supply chains, which have been accelerated by trade tensions, could be a positive development for India’s economy. This could benefit the Indian manufacturing sector and ties in well with Modi government’s “Made in India” initiative.What is the digitalisation effect on India? Is India ready to go cashless?Digitalisation has made it easier for the population to gain access to high-speed Internet, make digital payments as well as access online/mobile services including banking, government services, and so on.

This has also reduced the need for paperwork, increased security and improved the ease of doing business in the country. India is certainly on the right path, but we do not believe that the country is ready to go cashless.

What should investors focus on when it comes to India?We believe that investors should focus on the long-term structural opportunities and ignore the short-term volatility caused clean-up measures and other temporary issues.

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