CISI: "India: Is The Growth Story Intact?"
Comment of the Day

September 21 2011

Commentary by Eoin Treacy

CISI: "India: Is The Growth Story Intact?"

Eoin Treacy's view I participated in an invitation only panel discussion for the members of the Chartered Institute for Securities & Investment focusing on India yesterday. Here is a summary of some of the points addressed.

Growth Outlook and Inflation - India's economy continues to grow strongly but inflation has been stubbornly high. The point was made that a number of the main contributors to high inflation are unlikely to be affected by higher interest rates. Agriculture prices were highlighted as an example. India has a system of minimum price supports for many basic food stuffs. The Congress Party, which forms part of the current administration, sees itself as representing the rural poor. Minimum price supports will be in the region of 17% higher this year than last which ensures a higher food price despite the fact that this year's monsoon has been favourable and food should be plentiful. Another panellist suggested that part of the reason the government is in favour of allowing large international food retailers access to the Indian market is because of the supply chain management and refrigeration they would introduce.

Infrastructure development is taking place. The cement sector is a notable outperformer with Associated Cement and Ultratech Cement offering exposure to the domestic demand story. I made the point that it was probably incorrect to compare India with China. In terms of infrastructure development China is more like the USA, which has planned cities featuring a grid system. India's development is more comparable to England's Industrial revolution where private enterprise dominated in a less planned environment. The fact that London has at least 6 hub railway stations rather than one central station is an example of this type of development.

Stock market performance: As with a number of other Asian markets consumer led sectors are among the best performers in India. However these sectors represent a comparatively small portion of the wide market. Therefore while the Nifty Index, which is heavily weighted by banks and energy companies, has been trending lower since late last year, the Consumer Durables and Fast Moving Consumer Goods sectors remain in relatively consistent uptrends.

While a number of Indian companies have gained international fame in the pharmaceutical and IT sectors, multinational companies with operations in India, offering exposure to the domestic demand story are outperforming. Nestle India, Siemens India, Hindustan Lever, GlaxoSmithKline Healthcare, Colgate Palmolive India are all outperforming the wider Indian market as well as their respective parent companies.

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