Confident on India's long term growth

Hugh Young, managing director of Aberdeen Asset Management Asia, comments: "The key feature of the decisive victory in the Indian elections for the Congress Party-led United Progressive Alliance (UPA) is that it will not have to rely on the Communist Party-led alliance, which held back much needed reforms in the past five years, to form a government. Although it is still 10 short of the 272 seats it needs for an overall parliamentary majority, the UPA will easily pick these up from minor parties and independent legislators, unlike in 2004 when it only won 218 seats and had to court the support of the left. The decisive result offers hope that economic and governance reforms will now move forward, although the huge budget deficit will continue to present a major challenge, with public opposition to subsidy cuts remaining strong. But the easing of foreign restrictions in the areas of banking, insurance and pensions now seems more likely, as does the privatisation of selected state-owned enterprises.

"India's economy has not been immune from the effects of the global economic crisis, but so far it has weathered it better then most. Growth is likely to fall to around 4% this year from around 8% in 2008, but in the context of conditions elsewhere this is impressive. India's economy is more domestically oriented than those of other emerging countries. Its export sector is more related to provision of services, such as call centres and software, than it is to the manufacture of goods, demand for which has been so badly battered. Furthermore, India's manufactured exports are in defensive areas such as pharmaceuticals, rather then more vulnerable segments like consumer electronics and cars. Overall, we expect India's growth to hold up reasonably well, and think that its stockmarket presents good long-term investment potential at current levels.

"We like one or two of the banks. For example, HDFC, which has a strong balance sheet and well-established brand, particularly in consumer banking, where strong demand for mortgages and other financial products is driving growth. We also hold Infosys, India's top IT company, which has strong engineering capabilities and remains very competitive globally."