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A leading fund manager gives his view on the investment opportunities in India.
India has long since shaken off the domination of British rule to become an economic success story.
Until the Nineties, growth in Indian companies was hampered by a lack of economic freedom and "Licence Raj", a labyrinthine system of state regulations and licences. Freed from those shackles, the Indian corporate sector has since woken with a vengeance.
Investors canny enough to buy into the market around the time of India's economic liberalisation have made some impressive stock market gains. Fast forward to today, though, and India's rate of economic growth has slowed.
However, it is important to remember that GDP growth does not always go hand in hand with equity market returns and that India's listed companies are not necessarily representative of its broader economic trends.
Ultimately, a company's investment fundamentals are far more significant than macroeconomic themes.
India has established a firm foothold as a premier outsourcing destination, benefiting from the high number of
Western companies relocating back office functions abroad. Maintaining its ascendancy in such areas is vital for the growth prospects of Indian firms; whereas China's growth is propelled by industrial production, India is dependent on its IT and service sectors.
During the recent financial crisis, it became clear that Indian IT companies were uncomfortably reliant on revenue streams from the West. Learning from their success stories on Indian soil, companies including Infosys, Wipro (BSE: WIPROSL.BO - news) and Tata Consultancy Services are now looking to expand into Africa, China and Latin America.
Here they can meet demand for IT products and services and expand their businesses into more profitable emerging markets. Such diversification is paramount if these companies are to profitably grow their businesses.
A spate of corruption scandals has tarnished India's corporate sector in recent months. Bribes and underhand dealings are playing a part in the most commonplace transactions.
For investors, it is essential to understand the extent to which corruption colours the corporate sector to allow an informed decision on prospective investments. By posing a direct investment risk, the impact of corruption should not be underestimated, as it hinders development, economic growth, and, by extension, share prices. Contracts and licences won in dubious circumstances are far more likely to be torn up in future years.
Encouragingly, there is increased willingness to confront corruption. Both the Indian authorities and people want to divest themselves of its stigma and damaging consequences. This should provide long-term benefits to investors in Indian companies.
Demand for water represents another long-term investment risk. Historically, India has vied with Pakistan, Nepal and Bangladesh over water originating in the Himalayas. China has now also entered the fray, damming several rivers originating in the Tibetan plateau.
This raises grave fears over China's ambitious plans to divert water originating in its territory, with some analysts speculating that it could result in a regional war over water. At best, China's actions will restrict
India's already scarce water supply, placing tension on an already fragile relationship.
Looking to the long term, trends such as improved education, urbanisation and efforts to curb corruption suggest that India has yet to achieve its full potential. Commitments to socioeconomic improvements are just beginning to bear fruit; educational reforms are a work in progress, while the struggle against corruption and the tussles between farmers and industrialists have yet to be resolved.
Entrepreneurship is also on the rise, as a raft of ambitious individuals innovate efficient and creative ways to capitalise on India's investment potential. Company managers are also becoming increasingly aware of globalisation and its attendant opportunities.
http://uk.finance.yahoo.com/news/corruption-colours-indian-corporate-sector-074610237.html
India has long since shaken off the domination of British rule to become an economic success story.
Until the Nineties, growth in Indian companies was hampered by a lack of economic freedom and "Licence Raj", a labyrinthine system of state regulations and licences. Freed from those shackles, the Indian corporate sector has since woken with a vengeance.
Investors canny enough to buy into the market around the time of India's economic liberalisation have made some impressive stock market gains. Fast forward to today, though, and India's rate of economic growth has slowed.
However, it is important to remember that GDP growth does not always go hand in hand with equity market returns and that India's listed companies are not necessarily representative of its broader economic trends.
Ultimately, a company's investment fundamentals are far more significant than macroeconomic themes.
India has established a firm foothold as a premier outsourcing destination, benefiting from the high number of
Western companies relocating back office functions abroad. Maintaining its ascendancy in such areas is vital for the growth prospects of Indian firms; whereas China's growth is propelled by industrial production, India is dependent on its IT and service sectors.
During the recent financial crisis, it became clear that Indian IT companies were uncomfortably reliant on revenue streams from the West. Learning from their success stories on Indian soil, companies including Infosys, Wipro (BSE: WIPROSL.BO - news) and Tata Consultancy Services are now looking to expand into Africa, China and Latin America.
Here they can meet demand for IT products and services and expand their businesses into more profitable emerging markets. Such diversification is paramount if these companies are to profitably grow their businesses.
A spate of corruption scandals has tarnished India's corporate sector in recent months. Bribes and underhand dealings are playing a part in the most commonplace transactions.
For investors, it is essential to understand the extent to which corruption colours the corporate sector to allow an informed decision on prospective investments. By posing a direct investment risk, the impact of corruption should not be underestimated, as it hinders development, economic growth, and, by extension, share prices. Contracts and licences won in dubious circumstances are far more likely to be torn up in future years.
Encouragingly, there is increased willingness to confront corruption. Both the Indian authorities and people want to divest themselves of its stigma and damaging consequences. This should provide long-term benefits to investors in Indian companies.
Demand for water represents another long-term investment risk. Historically, India has vied with Pakistan, Nepal and Bangladesh over water originating in the Himalayas. China has now also entered the fray, damming several rivers originating in the Tibetan plateau.
This raises grave fears over China's ambitious plans to divert water originating in its territory, with some analysts speculating that it could result in a regional war over water. At best, China's actions will restrict
India's already scarce water supply, placing tension on an already fragile relationship.
Looking to the long term, trends such as improved education, urbanisation and efforts to curb corruption suggest that India has yet to achieve its full potential. Commitments to socioeconomic improvements are just beginning to bear fruit; educational reforms are a work in progress, while the struggle against corruption and the tussles between farmers and industrialists have yet to be resolved.
Entrepreneurship is also on the rise, as a raft of ambitious individuals innovate efficient and creative ways to capitalise on India's investment potential. Company managers are also becoming increasingly aware of globalisation and its attendant opportunities.
http://uk.finance.yahoo.com/news/corruption-colours-indian-corporate-sector-074610237.html
