Have patience with India
World stock markets remained highly turbulent in February. Global macroeconomic factors, such as the outlook for US interest rates, oil prices and developments in China, caused the market to fall sharply early in the month, before then recovering towards the end. The Carnegie Indienfond fund fell by 6.9 percent.
Most Asian countries, and in particular India, benefit from lower oil prices since falling production costs lead to better margins. One problem, however, is that low oil prices are seen as an indicator of slower global growth.
This is a downside because many Asian economies are driven by exports. Another problem is that low oil prices drive up the value of the dollar, which in turn puts pressure on Asian currencies.
On the domestic front, the trend was dominated by company reports and the government’s budget for the next fiscal year. The reporting season was generally weak, especially for the state banks. Despite this, several of our portfolio companies issued really good results. New guidelines are forcing banks to clean up their bad debt losses, which is a troublesome cost in the short term. Next year’s budget is likely to be burdened by essential capital support to state banks. If budget targets are not met, major infrastructure projects could be delayed. Wages for India’s civil servants increase regularly every six years and this year it is time again, which could be positive for consumer goods and car sales.
The holdings in LIC Housing Finance, Havells and Motherson Sumi Systems were sold during the month. A new investment was made in IT consulting firm Infosys.
India may encounter some headwinds in the short term but, in the longer term and with a little patience, it is easier to be optimistic. India is driven largely by domestic consumption, and therefore benefits from lower commodity prices. Lower oil prices mean lower inflation. If the situation in China stabilises and if the Fed does not hike its rates, the central bank may cut interest rates further.