Manulife AM banks on India potential with fund launch

The Asian Development Bank believes India’s economic growth in the coming years is “interesting” and Standard and Poor’s Ratings Services foresees that the country’s reforms and economic momentum could unlock corporate growth.

Manulife AM has just launched an Indian equity fund, while SCB Asset Management made a similar move last month.

Rana Gupta, Indian equity specialist at Manulife AM, said he could see significant growth potential for India in the years to come. Policy reforms led by Prime Minister Nerendra Modi are supporting a transition to higher growth while moderate inflation, lower oil prices and continued monetary easing should support domestic demand this year.

Increasing public infrastructure spending, a relatively young population, a rising middle class and low expectations of volatility from a US interest-rate increase are also supporting factors for the current rise of Asia’s third-largest economy, he said. “I am very confident in Modi’s policy because the areas of reform that he has been working on are long-term fundamental issues,” Gupta said. 

“Private investment is expected to have a positive response from these measures, and we believe that the private-sector response will be more apparent in the second half of 2015, or from October onwards.” 

The Indian government is expected to spend the equivalent of around Bt1.3 trillion on public investment this year, mainly focused on road and rail infrastructures, and this represents a 25-per-cent increase in government spending on investment when compared with last year, he said.

 

Growth may outpace China

Modi’s policies to reform the bureaucracy, push for cooperative federalism, increase a transparent auction-driven policy for allocation of natural resources, and arrest leakages of subsidies through direct benefit transfer have been successfully implemented and have already increased government revenue.

Moreover, his policy for an efficient indirect-taxation system – via a goods and services tax – is expected to roll out in 2017, said the Manulife AM equity specialist.

Gupta believes Indian gross domestic product will triple to reach US$5 trillion (about Bt160 trillion) by 2025 if its economic growth can be maintained at a compound annual growth rate of 6.75 per cent over the next 10 years.

He also expects India’s listed companies to have earnings growth of around 15-20 per cent this year, and 18-19 per cent in 2016 and 2017, from an improvement in domestic demand and a substantial decline in commodity prices.

The Asian Development Bank’s senior economist for Thailand, Luxmon Attapich, said on Monday that the prospect of Indian economic growth in the coming years was something that “we should be keeping our eyes on”.

The bank projects India’s GDP growth to expand from 7.4 per cent last year to 7.8 and 8.2 per cent in 2015 and 2016 respectively. 

“India is expected to grow faster than China in the next few years,” Shang-Jin Wei, the ADB’s chief economist, said after the release of the “Asian Development Outlook 2015” on Monday. 

“The government’s pro-investment attitude, improvements in the fiscal and current-account deficits, and some forward movement on resolving structural bottlenecks have helped improve the business climate and make India attractive again to both domestic and foreign investors.” Meanwhile, Standard and Poor’s said in a special report titled “India Credit Spotlight” that India’s reform drive and economic momentum could give plenty of growth opportunities to the country’s top corporates, but many of them were waiting for the government to put policy into action before investing further. 

“The key to corporate growth will be whether the government can deliver on its reform promises. If it does, we believe the top players will be ready to capitalise,” said S&P credit analyst Mehul Sukkawala.