India: The Giant Awakens

A feature story from Aberdeen Asset Management


India: 1.3 billion people, will soon overtake China, once a hindrance to growth, will be its greatest asset in the future

1. Indians are young with over 65% of the population under 35
2.majority are highly educated and fluent in English
3. 70% of the population live in rural areas with massive potential for urbanisation
4. Indians are diligent savers and generally eschew debt
5. potential demand for a variety of goods and services from a large and expanding middle class is huge.

1. growth without redistribution
2. gender equality



After the war, the socialist and protectionist model of development had failed

low growth and a series of severe balance of payments crises
Planning Commission – a key agency for economic planning for successive governments through until 2014

Inflection point in 1991, India undertook reforms (embracing market economy) out of necessity – the country was on the brink of default


Narendra Modi:

15th Prime Minister elected in May 2014, enacting reforms from ‘Make in India’ to improving sanitation services.

“Our trip to India reinforced our view that the seeds of significant structural changes have been sown.”

Central to Modi’s success will be his continued focus on competitive federalism – the principle that Indians are best served by allowing state governments to compete with each other (disbanded ‘one size fits all’ )

Government efficiency is improving considerably and the number of stalled projects is declining.


Make in India:

“some investment has taken place and more is to come, infrastructure is still poor.” Roads, power and transportation are all key target areas of ‘Make in India’.

opportunity for car growth – India has around 18 cars per 1,000 people, compared to China’s 130 and Brazil’s 250

attracted more FDI into new projects than both the US and China
FDI by GE, Alstom, Samsung-Techwin, Foxconn


Land reform:

The Land Acquisition Bill aims to streamline the complex process of acquiring land from rural farmers and tribes for building much-needed infrastructure

Progress can now be made on a state-by-state basis without the need to wait for central government to pass legislation

Modi’s approach is likely to further foster competitive federalism. A healthy level of competition between states for land, funds, talent and other resources is good for the country


Digital India:

1. transform the country into a digitally empowered knowledge economy
2. boost standards of governance of citizens through better engagement with the government

infrastructure required is vast: broadband networks, public Wi-Fi hotspots, universal phone connectivity

30% of FDI flows are tied to the rapidly expanding e-commerce sector
largest employers in India’s premium college campuses are now start-ups, many of them technology-focussed (Alibaba Group’s investment of $680m in Paytm, an Indian payments start-up)

‘Digital India’ is one of many reforms that is helping make doing business easier in India


Fixing corporate India:

According to the World Bank, it takes 28 days to start a business in india (19 days in Pakistan, 11 in Japan, 4 in Korea and just 3 in Australia)

One scheme in Delhi, soon to be adopted in other parts of the country, has cut the time required to incorporate a company to just one day

‘Start-Up India, Stand-Up India’ campaign bridging the gap between new start-ups and venture capital and angel investors

bankruptcy law help clear up bank balance sheets to allow lending for more productive purposes


Broke banks:

“The divergent fortunes of India’s banks became clear to us on our latest visit”

India’s central bank has now urged lenders to clean up all bad loans by March 2017

With the private sector unwilling or unable to participate in the current round of investment, planned government expenditure having risen significantly this fiscal year.



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“If one looks closely, changes are taking place everywhere. Indeed, reforms were always intended to be long-term in nature, rather than big bang.”




“China’s ok, India’s great, Asia’s cheap”

Two short stories from Aberdeen Asset Management


Six words (and five charts) on Asia


To sum up Asia in six words:“China’s ok, India’s great, Asia’s cheap”.

don’t panic about China (yet), India’s doing well and Asian equity valuations are relatively attractive.


– China’s service sector now accounts for more than 50% of GDP
– Still room for further stimulus


– Fiscal deficit is lowering
– Reform progress is impressive

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Don’t feed the bears

Asian markets are getting mauled. what’s going on?

China is the main concern: loss of confidence

– stock market bubble burst

most shares traded do a poor job of reflecting corporate earnings
impotent government market manipulation
on-off speculative appetite of China’s retail investors

– shock of a yuan devaluation

Central banks across the region may be tempted to follow Beijing and weaken their own currencies in an attempt to maintain export competitiveness

Investors worried under such environment:

Prices have been supported by liquidity and confidence in policymakers’ judgement, not by corporate fundamentals.

Reasons for long

– Asia, and more so emerging markets, looks cheap compared to Europe and the US

– corporate earnings there have stabilised for the most part though money is flowing away

– “We may even see an earnings recovery as soon as next year.”

– currencies weakness may exaggerate market weakness in the short term, but they do not play a significant part in equity performance in the long run.


Comparisons being made with the Asian crisis nearly 20 years ago make no sense

One or two countries vulnerable to capital outflows (put pressure on debt servicing and currencies) are the exceptions and we do not see scope for contagion

– because the differences within emerging markets are better understood today



The Global Simplicity Index

Focusing on the world’s 200 largest companies, a research discovery was an inverted relationship between complexity and profit

A certain degree of complexity can be good for business performance, but continually adding to it can be detrimental. The latter includes:

– trying to serve too many different market segments or customers
– attempting to do everything in-house
– having a constantly changing business strategy