F&C's Mahtani - Next decade will belong to India

Whilst the strong economic development in China dominated headlines over the last decade, F&C's Sam Mahtani believes that the next decade will belong to India. 

Economic growth in India has been on an upward trend over the past two decades. As such, Mahtani anticipates that growth will continue to accelerate this decade, moving above 9%pa, and that India will likely overtake China to become the fastest growing economy in the world during the next five years. 

Over 50% of India's population are under 25 and highly aspirational, providing a vast consuming class which Mahtani believes should drive domestic demand. Elsewhere, he anticipates that the accelerating savings ratio could provide financing for the 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: "Following chronic underinvestment in infrastructure in the last decade, the new 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. They have also restarted the privatisation programme with a number of companies in the public sector coming to the equity market, attempting to emulate the successful UK privatisation programme of the 1980s and 1990s, to attract retail investors." 

Foreign Domestic Investment (FDI) is another key area where India has enjoyed recent success. India is catching up with China, following the deregulation of a number of sectors, and Mahtani estimates that by 2011 FDI will be around US$30bn, a substantial increase from the US$1.5bn India received in 1995. 

Mahtani anticipates that these combined positive elements should see India enter a new phase of earnings growth and expects earnings growth of at least 20%pa for the next few years. 

Whilst he remains positive on a medium to long-term outlook, Mahtani cautions that investors need to be selective when identifying themes and stocks. 

"Metals & Mining is one area which should benefit from robust demand led by infrastructure growth and higher consumption for most metals as consumer demand grows. I also see a huge opportunity in 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. Pharmaceuticals is another key theme, with Indian drugs companies well positioned to benefit from expertise, low cost base and integrated business models," Mahtani concluded. 

Mahtani highlights Jindal Steel & Power, Ranbaxy and Axis Bank as high conviction stock ideas in India.