Jupiter India Accumulation

It has been a rocky ride in the Indian market this year not helped by the general fall out in the credit crunch and the subsequent inflationary pressures weighing heavily on many major economies. The Indian market has been especially volatile in recent weeks so we sought the views of Avinash Vazirani, manager of the Jupiter India Fund who offered some perspective on the current issues facing the market.

He believes the more recent market volatility is down to political uncertainty over the future of a nuclear agreement with the US. The country’s Prime Minister Manmohan Singh is looking for support as it would give India access to greater sources of alternative energy like nuclear power which is required to drive its buoyant economy.

However, India’s Communist parties, whose support is crucial to the government’s survival, is against the agreement as it feels it would affect India’s independence on foreign policy and its scientific capabilities. The market has therefore become nervous that this could trigger a general election much earlier than anticipated.

What’s more, investors have also been worried about inflation which reached a 13 year high in India last month driven by rising oil and food prices. The government’s reduction in fuel subsidies has not helped either although the Reserve Bank of India has responded by raising interest rates. However, the good news is that food production has been increasing and there is also greater domestic production of oil and gas lined up for the next few quarters which should ease inflationary pressures.

Despite these issues, Avinash Vazirani feels India’s growth drivers remain firmly in place. The country is well supported by growing consumer demand fuelled by an emerging middle class population. A sharp increase in the government’s infrastructure spending should also ensure robust growth in the coming years.

India has a large stockmarket with over 7000 companies providing a wide range of stocks to invest in. One of his favoured investment themes is currently healthcare and this was the best performing sector in June according to the manager, although please note that past performance is not a guide to the future. The consumer goods sector makes up the largest sector in the portfolio and these companies are expected to thrive on the back of a more prosperous consumer.

Once political and inflationary pressures ease, growth should resume in both the economy and the market. While we cannot rule out short term volatility, we remain optimistic for the long term prospects for India and valuations at current levels are now more attractive compared to six months ago.