Indian confidence vote ‘good news for economy'

This week's vote of confidence in India's Prime Minister Manmohan Singh is good news for the country as the government now has an opportunity to implement reforms that are likely to have a positive impact on the economy, according to Sam Mahtani, F&C's India specialist.

"The past few years has seen the left wing coalition parties block major reforms, and they are now no longer part of the government," he said. "This week's vote gives the Congress-led ruling coalition the opportunity to push through reforms such as the insurance deregulation bill."

Singh's coalition government won a bigger than expected majority of votes in the 541-member lower house of parliament on Tuesday. "This vote of confidence also provides a mandate to pursue the civil nuclear energy with the US, with companies such Larsen & Toubro Ltd and Bharat Heavy Electricals likely to benefit most", he commented.

F&C's emerging markets team's positive outlook for the country was clearly reflected recently, when the firm's global emerging market (GEM) portfolios moved significantly overweight in India.

"We took an overweight position in India two weeks ago when we sensed excessive pessimism in the market," he explained. "The growth story is definitely set to continue and we believe that we are close to the peak on inflation and interest rate concerns". Mahtani's view is that at present India is one of the most attractive countries on a long-term fundamentals basis.

"Valuations have come down to 12x forward earnings and we think that earnings growth will be solid over the next couple of years", he continued.

His favourite Indian companies include Bharat Heavy Electricals Ltd, the infrastructure player, Reliance Industries, the oil and gas giant, and HDFC, the country's largest mortgage provider.