India ? A Leader Among Emerging Markets

17.08.10

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India is one of the world?s fastest growing major economies. It is Asia?s second largest economy and is expected to enjoy strong growth during 2010 along with other emerging markets. India?s eco

India is one of the world?s fastest growing major economies. It is Asia?s second largest economy and is expected to enjoy strong growth during 2010 along with other emerging markets. India?s economy is diverse and large with a number of major sectors including manufacturing industries, agriculture, textiles and handicrafts, and services.

The biggest boom to the economy has come in the shape of outsourcing activities for some of the major economies of the world and for information technology products.

Economywatch.com states that in 2009, the services sector, backed by the IT revolution, remained the biggest contributor to the national gross domestic product (GDP), with a contribution of 58.4%. The industry sector contributed 24.1% and the agriculture sector contributed 17.5%.

In July the HSBC Markit Purchasing Managers? Index nudged up to 57.6 from 57.3 in June, having dipped from a multi-year high. The Indian manufacturing sector was boosted by new orders, stronger output and rising prices. It was the 16th consecutive month that the Index has indicated growth. The factory output index jumped to a four-month high of 62.3 in July up from 60.5 in June.

New business growth, driven by domestic orders, has stood at 60 in the orders index since the start of 2010 where there were 14 consecutive months of expansion.

According to the Indian Economy Overview from the India Brand Equity Foundation (IBEF), the Ministry of Statistics and Programme Implementation estimates that the Indian economy grew 7.4% in 2009-10, exceeding the government forecast of 7.2% for the year. According to government data, the manufacturing sector witnessed a growth of 16.3% in January-March 2010 from a year earlier.

India?s industrial output grew by 17.6% in April 2010. The manufacturing sector, which accounts for 80% of the index of industrial production, grew 19.4%, a massive hike from 0.4% a year previously. Capital goods production was up by 72.8% against a contraction of 5.9% a year ago and consumer durables output continued to grow at a fast pace of 37%, reflecting an increase in purchases of goods such as televisions and refrigerators.

Foreign direct investment in India amounted to US$25,888 million during the financial year 2009-10. The services sector comprising financial and non-financial services attracted the highest amount of equity inflow into India, while construction activities including roadways and highways attracted the second largest amount. Housing and real estate came next followed by telecommunications.

Some other sectors which saw increased activity last year were major ports, foreign tourist arrivals, foreign exchange earnings, telephones, business process outsourcing, vehicle manufacture and gems and jewellery exports.

Growth potential from the IBEF shows:

?The data centre services market in the country is forecast to grow at a compound annual growth rate of 22.7% between 2009 and 2011 according to research firm IDC.

?The domestic BPO (business process outsourcing) market is expected to grow at 25% in 2010 and estimated to grow 19% through 2013 according to research firm Gartner.

?The BMI India Retail Report Quarter 3 2010 forecasts that total retail sales will grow from US$ 353 billion in 2010 to US$ 543 billion by 2014.

?According to a report by Edelweiss Capital, India’s GDP is set to quadruple over the next ten years and the country is likely to become an over US$ 4 trillion economy by 2020.

?India will overtake China to become the world’s fastest growing economy by 2018, according to the Economist Intelligence Unit, the research arm of London-based Economist magazine.

Global growth forecasts

Emerging economies like India and China have outpaced the developed countries (which were hit hardest by the global slump), helping the Organisation for Economic Co-operation and Development (OECD) to raise its growth forecast for 2010 and 2011 at the end of May.

GDP across OECD countries is projected to rise by 2.7% this year and by 2.8% in 2011. These figures were revised upwards from November 2009 when GDP growth of 1.9% in 2010 and 2.5% in 2011 was forecast. When non-members such as India and China are factored in, the global economy is forecast to expand 4.6% this year and 4.5% in 2011. This compares to the 3.4% this year and 3.7% in 2011 predicted in November.

China is the fastest growing economy at more then 11% this year, with India next at 8.3% and Brazil at 6.5%. India will continue to grow next year at 8.5% while China and Brazil will slow to 9.7% and 5% respectively.

By comparison, the US economy will grow 3.2% in 2010 and 2011 and the Eurozone by 1.2% this year and 0.1% in 2011. The UK will grow 1.3% this year and 2.5% in 2011.

The April 2010 World Economic Outlook (WEO) from the International Monetary Fund (IMF) projects world growth at about 4.5% in 2010 and 4.25% in 2011. It was better than expected in April mostly due to robust growth in Asia. Year over year projections for 2010 and 2011 were: World output 4.6% and 4.3% respectively; advanced economies 2.6% and 2.4%; the US 3.3% and 2.9%; the Eurozone 1% and 1.3%; the UK 1.2% and 2.1%.

The WEO forecasts that emerging and developing economies will grow by 6.8% in 2010 and 6.4% in 2011. China?s growth will be 10.5% in 2010 and 9.6% in 2011 and India?s an impressive 9.4% in 2010 and 8.4% in 2011.

The IMF said that economic activity in the Asia and Pacific region has been sustained by continued buoyancy in exports and strong private domestic demand. In India, growth is expected to accelerate in 2010, as robust corporate profits and favorable financing conditions fuel investment.

India?s role in the world economy is going from strength to strength. It is possible to invest in India?s rising businesses and industries through equities. You can opt for an emerging markets fund which has exposure to India, or a fund dedicated to India with a cross-section of new and established corporations, giving you access to a diversified selection of sectors.

Investment in emerging markets would normally take up a small section of your portfolio and be considered as a long-term investment. Although the risk element with developing economies is higher it carries the prospect of higher returns and so is useful for the growth element of your portfolio.

Any investment is dependent on the investment objectives, time horizon and attitude to risk of the investor. The value of investments can fall as well as rise as can the income arising from them. Past performance should not be seen as an indication of future performance. You should seek advice from an authorised financial adviser such as Blevins Franks Financial Management Ltd.

By Bill Blevins, Managing Director, Blevins Franks

4th August 2010

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.

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