Why There Is Still Value In India Even As Key Indices Touch Fresh Highs 1

India’s indices touched fresh highs

The Indian economy is in the limelight of the investing world as positive developments continue to unfold. It is currently the fastest growing major economy in the world, with the IMF expecting 6.8% for the country’s financial year 2017, surpassing China’s growth forecast of 6.6%. Further, the Organization for Economic Co-operation and Development (OECD) also expects India to outperform other emerging markets. It expects GDP growth to remain above 7% in the coming years fueled by more structural reforms. Foreign investors are pouring money into Indian stock markets backed by optimism surrounding economic growth and structural reforms.

Since 2014, Prime Minister Modi has made a serious bid to promote infrastructure development, attract foreign investment and reduce corruption in the Indian economy. Further, implementation of the GST (goods and services tax) is also positive for the economy. Year to date, the iShares MSCI India Index (INDA)  (INDY) has returned 17.1%, outperforming the MSCI Emerging Markets Index (EEM). April has seen benchmark equity indices S&P BSE Sensex and Nifty 50 touching all-time highs.

Warren Buffet recently mentioned that India has immense potential and emphasized interest in gaining portfolio exposure to strong businesses in the country. UBS and Citi are also bullish on the country. Head of Citi Research in India Surendra Goyal recently stated, “Low inflation, goods and services tax (GST) about to come in, strong domestic and foreign institutional investors (FII) flows are the positives which give people a medium-term comfort that India is one of the key markets to be in.” Goldman Sachs is planning to invest $1 billion in India through its private equity business over a span of three to four years. Ankur Sahu of the Goldman Sachs merchant banking division recently stated, “We think the India opportunity is big and we plan to invest a fair bit of capital. The goal is to invest $200-300 million a year; potentially come close to a billion dollars in the next three to four years.”

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The flipside

Manishi Raychaudhuri of BNP Paribas believes India’s stocks markets are overvalued currently, with the investment house recently turning cautious on India. He mentioned in a recent interview that earnings of Indian companies have been disappointing and do not warrant such outperformance.

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