India shines as investment destination

As well, unlike many other emerging markets, India is benefiting from the slump in commodity prices.

"HSBC is really cautious on the growth prospects for Asean at the moment," said Su Sian Lim, an economist for the banking giant.

"There are significant downside risks that are emanating from external pressures, including the struggle in the past two or three years with exports, which have basically collapsed. The prospects are not looking that good with China’s gross domestic product [growth looking] to be in the lower-than-7-per cent range this year and next year."

In the past few quarters consumer spending and business investment have begun to falter in Asean. Despite low interest rates, consumers and businesses in the region have been shying away from rapid accumulations of debt for a few years, while flat real wage growth has had a knock-on effect on business activity.

"With what is going on in India right now with reforms and the excitement surrounding the new government, could India become Asean’s next China? As China starts to slow down, then could India start to take its place and offer Southeast Asian investors attractive investment opportunities?

"Just a point to note, despite structural challenges that India is facing, we still expect India’s economy to expand by 7.8 per cent, which is a nice step [up] from 7.3 per cent in 2014. We expect the Indian economy to expand by more than 8 per cent in 2016," Lim said.

She said India’s GDP growth was starting to outpace that of China. India is benefiting from the drops in global commodity prices, since the country is not a major commodity exporter but rather imports most of its energy and raw-material needs.

Kapil Seth, HSBC’s head of securities services in India, said the country was not completely immune to the effects of the eventual US interest-rate increase. However, India’s economy is less exposed to external factors, as exports contribute far less to its economy than they do in other emerging markets, while its policy interest rate is going in the opposite direction of other emerging economies.

Price pressures are continuing to ease, which leaves room for further easing by the Reserve Bank of India even after its three rate cuts already this year. Unlike many other emerging markets forced to keep rates unchanged, or possibly even raise them, to control the financial and inflationary effects of a volatile exchange rate, the RBI can afford to head in the opposite direction.

Lim and Sanjay Bajaj, head of equity capital markets for HSBC India, outlined the sectors they expect to show attractive growth in India. They are software and Internet technology, business services such as banking from the government’s financial-inclusion policy, manufacturing that attracts high volumes of foreign direct investment brought on by a large untapped domestic market, construction for government infrastructure projects, and the health sector from the growing population.