Close

Profit growth high in the holdings

The Indian economy grew by 6.3% in the last quarter, a bit better than the preceding quarter, when activity weakened due to the national VAT system introduced in July.

In other good news, Moody’s upgraded India’s credit rating by one notch. This opens the door to lower bond rates and lower funding costs for the banking system. After the report season, the Indian stock exchange is in something of a vacuum. Corporate profits for the quarter rose by an underwhelming 6% overall. Expectations for the full year 2017 are that profits will rise by 12%. Considering that the market is valued at 18.5 times annual profits, this feels a bit anaemic.

Profits are weak this year for several reasons. Corporate investments are lagging, partly because firms have free capacity and no need to invest, partly because debt in the business sector is already high. The state-owned banks cannot increase lending until earlier credit losses have been written off. Household consumption in rural India has been negatively affected by low global grain prices. The government has big plans for infrastructure investment, but implementation is going slowly. Trends are also weak for the export industries of IT, service and pharmaceuticals.

We are seeing growth in the selective industrial companies, urban household consumption, the private banks and certain commodities companies. Consequently, the fund’s exposure is mainly to banks, capital goods like cars and motorcycles, and companies that are suppliers to global carmakers. Cement, air conditioning and tyres are other areas that are doing well.

Carnegie Indienfond’s holdings thus have considerably higher profit growth than the market as a whole. Profits are growing by 15–20% for most companies in the portfolio. The next potentially good news will come in mid-December, when we will find out whether BJP and Narendra Modi will stay in power in the state of Gujarat, which will control developments in the short term.

More about the fund

Indienfond

Carnegie Indienfond offers exposure towards one of the world’s most exciting emerging markets. India has in the last decade established itself as a major economic power with extremely high growth. The...

More info
Buy fund

More articles

Car sales at half speed
Carnegie Indienfond

Car sales at half speed

The Indian market was strong in June. Carnegie Indienfond rose 6.1% this month. Global risk appetite is returning as a function of economies opening up and central banks printing new...

Gunnar Påhlson 3 July 2020
India was already cooling before lockdown
Carnegie Indienfond

India was already cooling before lockdown

The Indian market fell again in May. Carnegie Indienfond fell 7.4 percent this month, largely due to a weakening of the currency. The Indian rupee fell 4.7 percent against the...

Gunnar Påhlson 4 June 2020
Low valuation – but too early to sound the all-clear
Carnegie Indienfond

Low valuation – but too early to sound the all-clear

India went into lockdown in the last week of March in order to restrict the spread of Covid-19. This was originally intended to last three weeks, but has now been...

Gunnar Påhlson 6 May 2020