This week Prime Minister David Cameron flew to India to create what he hopes is a new “special relationship” akin to that of the UK and the US. While few would doubt the UK could benefit from closer business ties with India, should investors be piling into the sub-continent also?
In a speech in Bangalore on Wednesday, Cameron said: “India represents an enormous opportunity for British companies. Already our trade relationship is worth £11.5bn a year. But I want us to go further. India plans to invest $500bn in infrastructure in the coming years.
“That is of course good for Indian business, but it is also a chance for British companies to generate growth. [The Indian] retail market is growing by 25 per cent annually, and there is no reason why British companies should not be part of that too.”
But can retail investors benefit also?
F&C emerging market Oeic manager Sam Mahtani believes that the next decade will belong to India, even ahead of China.
He says: “Over 50 per cent of India’s population are under 25 and highly aspirational, providing a vast consuming class which I believe should drive domestic demand.”
He says the accelerating savings ratio could provide financing for the Indian government’s big infrastructure programme and potentially lead to a large increase in domestic equity investments, an area to which so far Indian households have had a low exposure.
Mahtani commented: “The Indian government’s ambitious spending plan for the coming decade – an impressive $1.7 trillion – will act as a key driver of economic growth in areas that clearly need investment, such as power and railways.”
Hargreaves Lansdown head of research Mark Dampier is very confident of India’s future. He says while investors may be better to invest a little now and more later, India will become the market to make money in years to come.
He says: “India is a great 20 year story. Is this the right moment to buy a lot in India? Probably not, because right now interest rates are on the up and inflation is at 10 per cent, which is not normally the best short-term background.
“But it is potentially a better story than China over 20 years. Democracy is wonderful in India – they are English speaking and have English accounting. They do need to invest in infrastructure as the whole place keeps grinding to a halt, but they are investing now, so it’s a long-term story. Investors should put a little in now, more in later.”
India took a big step in standing shoulder to shoulder with the biggest world economies this month after it launched a new symbol for the rupee. One minister called it “an identity for Indian currency”.
Its rise as a financial power is inevitable according to Mahtani: “I see a huge opportunity in Indian financial services –there are over 1 billion people in India but only 50 million bank accounts and 20 million credit cards. There is massive potential for growth across the product ranges.”
This view is shared by Indian IFAs also. Earlier this year Money Marketing talked to iTrust, a Delhi IFA who was preparing for the explosion in the Indian economy as young people look to spend new money.
iTrust co-founder Kartik Varma says: “Incomes in the city are growing by close to 10 to 15 per cent per annum – people are doubling their incomes in a decade.
“But the average age of the country is 26 years now. We are young, we are focused on asset accumulation and we are focused on consumption because it is the first time people have earned this much.”
Dampier adds: “India isn’t a mainstream story, but it will become so. China has taken all the headlines but India is catching up fast.”