“India has gone from the country set to overtake China to the country that can do nothing right,” says Archana Narayanan on Reuters.com. Growth has slowed to 5% a year. Inflation is still high at 7%, despite recent interest-rate hikes. The government is overspending and “has strayed from the path of economic liberalisation”. A recent U-turn on opening up the retail sector to foreign competition rattled investors.
However, furniture giant IKEA and Coca Cola have announced that they will pump $5bn into India, which shows that multinationals haven’t given up on the country.
Nor should investors. The long-term story remains compelling. The working age population continues to swell rapidly, and with incomes per capita still at a third of Chinese levels, there is ample scope for consumers’ spending power to grow.
For now, the sliding oil price bodes well. The Indian economy doesn’t depend on exports and the large domestic market should temper the impact of the global downturn.
Moreover, Prime Minister Manmohan Singh has taken over the finance ministry. That augurs well for renewed liberalisation, as his early 1990s reforms sparked two decades of rapid growth. Stocks are also unusually cheap, according to JP Morgan. This looks like a buying opportunity for long-term investors. MoneyWeek’s favourite India play is Aberdeen’s New India Trust (LSE: NII).