Tonight the night sky across India will come to life with fireworks as families get together to light oil lamps and exchange gifts to celebrate Diwali - the annual festival of lights.
This year, though, celebrations in the nation’s capital, Delhi, won’t be going off with the usual bang. The supreme court of India has banned the sale of firecrackers in the city in an attempt to prevent further air pollution, following the blanket of smog that greeted residents the day after Diwali last year. With signs of the Indian economy slowing down of late, could investor celebrations also be more muted this year?
It appears the recent major disruptions to the Indian economy - the demonetisation of two high value notes and the introduction of a new goods and services tax (GST) has had a negative effect. GDP growth has slowed and consumer spending has run out of steam, resulting in tough times for small businesses that make up the backbone of the Indian economy. A recent report by the Confederation of All India Traders suggests that markets across the country have recorded a 40% decline in sales during the key festive season leading up to Diwali.
Speaking at the recent IMF/World Bank annual meetings in Washington, IMF Chief Christine Lagarde described the demonetisation and GST as “a monumental effort” and confirmed the Indian economy was on a “very solid track” in the mid-term. This is despite the IMF’s decision to lower India’s growth projection to 6.7% in 2017, 0.5 percentage points less than its previous two forecasts in April and July. The IMF has also lowered the country’s growth for 2018 to 7.4%, 0.3 percentage points beneath its previous two projections.
Indian consumers will have also noticed the effect of Inflation which, after falling to a low of 1.5% in June, has been rising steadily over the summer with the wholesale price index (WPI) increasing to 3.2% in August. However, on a more positive note, the trend is moving downwards again with Nomura, the Japanese bank, expecting the figure to average 2.8% in 2018. This cooling down could give the Reserve Bank of India (RBI) some wriggle room to lower interest rates to counteract the recent slowdown. Earlier this month the central bank left rates unchanged, on the grounds of a potential upside risk to inflation.
For investors looking to India, the country’s stockmarket is looking quite expensive relative to other markets. According to Citi, the stockmarket is trading at 20.5 times the earnings that companies are expected to achieve this year, compared with an average of 14.4 times for Asia Pacific (ex Japan). India’s figure is also higher than the US which currently stands at 19.8 times.
In such a market taking an active approach across a wider remit makes sense. One way to do this is through a fund investing across all emerging markets, with the flexibility to adjust the portfolio towards opportunities across all emerging markets, rather than just one country. The Fidelity Emerging Markets Fund, which features on our Select 50 list of fund recommendations, does exactly that. Nick Price, the fund’s manager selects stocks on an individual, bottom-up basis, purely on the merits of the company’s potential rather than where its head office is based. To find out more about investing in emerging markets check out the latest episode of MoneyTalk which features an interview with Nick Price.
You can also get Tom Stevenson’s view on emerging markets in the latest issue of Investment Outlook.
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