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Home > Media > Investment Outlook on India for 2009

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India represents a good buying opportunity in 2009
by Paul Parambi, Head of International Business at Kotak Mahindra Bank
Global Assets
18th December 2008

After an unprecedented year for global markets and economies, the World Bank recently warned that the developing world faces the sharpest slowdown in growth since the Second World War, with India’s growth slowing down to 5.8% in 2009.

In December 2008, the Indian government announced an additional $4billion economic stimulus package to support continued economic growth. This brings the total amount of new government spending pledged to help the export, property and infrastructure sectors to $60bn.

Therefore, investors who are considering investing in India should act now, particularly as current valuations present a good opportunity for those seeking medium to long term gains. India’s long term growth story, driven by both consumption and investment, remains largely intact.

Although it has not emerged unscathed from global events, India’s banking and financial system remains among the most resilient in the world.

A conservative regulatory regime, for example, sets the Indian banking sector apart from other emerging and developed economies. These strict policies have been criticised for being restrictive in the past, yet this has prevented India from being exposed to the initial subprime crisis in the US.

In addition, we believe that India is relatively robust as compared to most other markets due to its predominantly domestic economy, which has insulated it from the worst of the global financial strife. In fact, India’s macroeconomic condition and relative isolation from global events could help the BSE-30 Index move upto levels of 13,000 from its current level of about 9,000 by end-CY2009E.

Some analysts claim that the Indian financial system will not be able to sustain this rapid growth in the economy, particularly in the field of infrastructure development and consumer debt. It is true that capital inflows are scarce due to liquidity problems and foreign investors deleveraging. Corporates will need to adjust to having access to less equity than they have become accustomed to in the past few years, yet this is a short tem situation, which is likely to stabilise in the second half of 2009.

* Investments in India are subject to the normal risks associated with emerging markets, including but not limited to risk of losing some or all of the capital invested, high volatility, variable liquidity, geopolitical risks (including political instability), exchange rate fluctuations and restrictions on foreign investors. Investments in India should, therefore, be considered only as part of a well diversified portfolio.

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