India still worth investing in, say fund managers

INDIA should not be overlooked as a lucrative emerging market for investors, despite its widening trade deficit, increasing energy costs and the falling value of the rupee, according to fund managers.

JP Morgan Asset Management said the value of the rupee has been damaged by the cost of importing and this has had a knock-on effect on investor sentiment.

But Ted Pulling, a fund manager with JP Morgan, claims the country is currently "an excellent earnings environment".

Its GPD is around 8.8%, making it the second strongest growing economy after China, and Pulling expects growth to be sustained at 7.5% to 9% over the longer term.

He said he is confident there are three main growth areas in India – infrastructure, investment and urbanisation.

India started its five-year plan in 2007 to spend $500bn on infrastructure, and better road systems and ports will lead to increased flows of activity.

Power is currently twice as expensive in India as it is in China, with half of the population having no access to any.

The result is a potentially serious impediment to economic growth, but the infrastructure plans mean that will be addressed.

Pulling said: "We already know that urbanisation has led to an increase in consumption. At present 30% of India's population lives in cities, but we expect this number to increase by around 5% over the next decade. This large population shift will lead to greater demand for consumables."

He also expects the financial circumstances of individuals to improve. There are 20 million credit cards in circulation in India, but it is estimated the market potential could be as big as 180 million.

The number of Indians with bank accounts is expected to grow to 500 million.

Pulling said further growth is possible due to the country having a young, working population, with 50% of Indians being younger than 21.

Paul Galloway of independent financial advice firm Edinburgh Risk Management said: "While we in the West are grappling with concerns about whether we are walking the tightrope of falling into recession, there are countries like India whose high GDP growth continues to attract fresh investment."