Investors who are looking for opportunities in India in 2010 should consider the infrastructure sector, says Nitin Jain, principal fund manager – long only strategy at Kotak Mahindra UK.
The current financial year has so far been the best year for Indian equities since 1991, despite the country being faced with a combination of the credit crisis in the first half and a very poor monsoon season.
Despite this, between July and September, GDP growth was recorded at 7.9 per cent.
Kotak Mahindra believes that a renewed government focus on infrastructure and the rural economy and continued buoyancy in the services sector will sustain the growth in GDP to around 7.5 per cent in 2010-11 and with it, strong growth in other areas of the Indian economy.
In 2010, India is likely to see significant investment activities in infrastructure. Backed heavily by government legislation and plans to spend an estimated USD500bn over the next five years, it is hoped that infrastructure developments will progress at a faster rate than ever before.
Kotak Mahindra says the 2010 Commonwealth Games, hosted in New Delhi this summer, is a perfect opportunity for India to showcase to the world the result of its enormous infrastructure investment with some USD344m being invested in both by the Indian government and privately funded projects. Whilst there are challenges involved in staging such an important event, government initiatives such as part-privately funded infrastructure projects are expected to help to deliver this infrastructure.
Government policy is expected also to turn its spotlight on the agricultural sector in 2010. The planned reforms in agricultural production, distribution and logistics through infrastructure investments will benefit agricultural communities. This will in turn help to boost GDP as about 60 per cent of India’s workforce is employed in the agricultural sector thus driving the development of infrastructure and growth in the consumption of consumer goods.
Overall, Kotak Mahindra believes 2010 will be a year of consolidation and will lay the foundation for faster economic growth in years to come. A large part of the infrastructure spend is expected to start paying dividends between 2011-2013 and benefits of large domestic oil and gas finds is likely to fully accrue as well.
Jain says February’s budget is likely to bring a reduction in fiscal deficit as the government exits the stimulus package and also pushes forward with its disinvestment programme with the effect of encouraging fresh equity issuances. Revenues by themselves are likely to pick up and credit availability and cost are likely to remain benign.
The Central Bank will continue to play a very important role in shaping the economic future of India in 2010. An accelerated exit policy from the central bank could play spoilsport to asset reflation and this is a key issue to watch out for. While Jain believes that the central bank will take certain tightening steps in the face of likely high inflation, he expects a calibrated exit and does not expect the central bank to raise rates in a hurry.
