Our long-term outlook for India remains unchanged. It is the largest democracy in the world and is among the fastest growing economies of its size bracket, with huge potential to expand further.
The per capita GDP for the country is below $2,000, which compares to about $50,000 for developed nations. The demographic dividend will continue to be favourable for India as its median age is still below 30. If this young population is gainfully employed and made productive it has the potential to not only emerge as a large market globally but also to lift a large part of humanity out of poverty over the coming decades.
While these factors are well known and widely discussed, there are also several other underappreciated aspects of India, which gather fewer headlines. These include an independent and functional albeit slow judiciary, a strong autonomous central bank, an independent election commission that ensures fair elections, smooth transition of power, freedom of speech and one the largest armies in the world that reports to the executive government. Yet often the lack of infrastructure, incidence of religious clashes, poverty, and women’s safety (which are of course major areas in need of improvement) tend to dominate the discourse about India. We feel a more balanced perspective is needed.
In 2019 all eyes will be on politics, as India will conduct its central elections where PM Modi will seek a fresh mandate., It is pertinent to note a couple of facts about the elections:
It is important to be aware of the political wrangling, but it is hazardous to predict election outcomes.
The governor of the central bank (Reserve Bank of India) recently quit following clashes of opinion over the monetary policy and the use of bank’s reserves. The government quickly appointed a replacement; however, we note that interference with the central bank policy by governments rarely sees favourable outcomes. These changes are evolutionary in nature and have longer rather than shorter-term implications. This is something to watch closely.
We are cognisant of the risks to the fortunes of India’s economy, which include trade wars, regional conflicts with neighbouring states, higher commodity prices and job creation. However, on balance our outlook for India remains positive. It is the sixth largest economy with GDP of $2.5 trillion, it is the second largest nation by population, and is one of the world’s youngest nations. India also boasts over 5,000 listed companies out of the 23,000 listed companies in the emerging markets, so it continues to be a great hunting ground for quality companies with excellent fundamentals to continue to compound cash flows.