Low price of oil fuels India

India’s economy, which is self-contained and has little reliance on exports, is also a major importer of oil. Some say it has tremendous long-term potential

By: Jade Hemeon
January 15, 2016 November 9, 2019
00:00

India stands out like a beacon in a world of slowing economic growth, and its pace of expansion is likely to beat even China this year.

Estimates for growth in India from the World Bank and other forecasters run in the 7.5% range, climbing toward 8% in 2017 and 2018. Unlike many Asian countries, India is a self-contained economy with little reliance on exports; and as a major importer of oil, it benefits from the slump in oil prices.

India’s government has taken advantage of the sharp decline in energy costs to eliminate the petroleum and diesel subsidies and increase excise taxes, which gives the government greater ability to spend on badly needed infrastructure projects.

The government of pro-business Prime Minister Narendra Modi, elected with a majority in 2014, has been moving ahead with financial reforms, but progress has been slower than expected. Meanwhile, stock prices in India have risen since his election on optimistic expectations, to the point at which there is concern about expensive valuations.

Nick Scott, head of Asian equities with I.G. Investment Management (H.K.) Ltd. in Hong Kong and portfolio manager of Investors Pacific International Fund, sponsored by Winnipeg-based Investors Group Inc., describes Modi as “a strong leader who is getting things going,” including a “made in India campaign” to support domestic businesses.

Scott likes the outlook for private banks, including IClCI Bank Ltd. Another favourite is Zee Entertainment Enterprises Ltd., a provider of Hindi television content.

“India has strong demographics, with a young, well-educated population,” he says. “There is tremendous long-term potential.”

Chuk Wong, portfolio manager of Dynamic Far East Value Fund, sponsored by 1832 Asset Management LP of Toronto, also likes India’s long-term potential but says the various layers of local government bureaucracy create obstructions in getting projects off the ground. Among the Dymanic fund’s holdings is LIC Housing Finance Ltd., a provider of housing loans and mortgages, which has an extensive branch network and is a leveraged play on the growth of the housing industry in India as its population of 1.2 billion people climb the economic ladder.

Financial services firms are also a big weighting in Excel India Fund, sponsored by Excel Funds Management Inc. of Mississauga, Ont. Holdings in this sector include ICICI Bank, Axis Bank Ltd., HDFC Bank Ltd. and IndusInd Bank Ltd. The Excel fund also has a significant position in Maruti Suzuki India Ltd., the largest car manufacturer in India with a market share of 43%, a clear beneficiary of rising incomes.

“Indian car ownership is still less than 10% of developed countries, and there’s a lot of upside,” says Christine Tan, senior portfolio manager at Excel Funds.