Continual growth is leading to new sectors for development and investment
Publicly traded Indian companies will deliver compound growth of between 15 and 20 percent over the next three years, says Mahesh Patil, Co-Chief Investment Officer of Equities at Aditya Birla Financial Services. As foreign investment in India continues to spur on new growth in new and exciting industries, government initiatives and rising spending power from India’s growing middle class make it a market in need of high-tech banking solutions.
Torrid GDP growth continues
The gains will be driven by a combination of government spending and personal consumption, as the country’s torrid GDP growth rate of 7.4 percent adds another 30 to 40 basis points in that period, he estimates. Mr. Patil made his remarks in Mumbai (Nov. 30) to Canadian investors on hand to assess the growth story of the world’s largest democracy. The 20 financial advisors - part of the Passport to the New India Due Diligence Tour hosted by Birla Sun Life and Excel Funds - are looking for confirmation of the bullish story on India that has dominated headlines for more than a year.
“India’s prospects look substantially better than they ever have in its past,” said Maneesh Dangi, Co-CIO of Fixed Income at Birla. He forecasts that the current economic cycle will continue for many years to come.
The fight against inflation
More importantly, he said, it’s become clear that the government has embraced inflation targeting and the country can expect inflation to continue to decline, likely falling into the 2 to 4 percent range in the next 15 years.Over the last 18 months, the policies of the Modi government and the Reserve Bank of India have brought India’s inflation rate down to about 5 percent, from about 8 percent in the first quarter of 2014.
One of the benefits of lower and more stable rates is that Indians are growing more inclined to take their savings out of hard assets, such as gold, and put excess capital into their bank accounts instead. The multiplier effect on those savings is expected to help further fund growth in areas such as infrastructure development and consumer spending.
The government has brought tens of millions of individuals into the banking system over the last year through “payment banks”. These are micro accounts that can hold up to approximately $1,500 and be accessed and managed through mobile phones. Although less than 40 percent of Indians own a bank account, there are some 900 million wireless subscriber accounts across the country.
Spurring growth and continual job inflation
The government’s push for “financial inclusion” is just one of a series of initiatives to spur growth and job creation in a country that is seeing millions of new entrants to the job market every month. The Modi-led administration is pouring billions of dollars into new infrastructure projects – from ports to railways – cutting corporate taxes and bureaucratic red tape, pushing an HST to unify the country’s disperse tax system and introducing a bankruptcy code to appease bond investors. One of the key goals is to expand India’s manufacturing sector as a means to absorb some of the country’s young labour force. Reaching a target of 25 percent of GDP from manufacturing would allow India to take advantage of its “demographic dividend,” said Ajay Srinivasan, CEO of Aditya Birla Financial Services Group.
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