Indian economy looks set to lead the global recovery in 2010

Tuesday, 10 November 2009 17:26

The Indian economy is showing signs that it will bounce back from the global downturn quicker and stronger than almost any other country according to Nitin Jain, Principal Fund Manager – Long Only strategy, Kotak Mahindra (UK) Ltd.

The Prime Ministers’ Economic Advisory Board in India recently predicted that GDP growth for 2009 will be 6.5%. The Index of Industrial Production (IIP) grew by 5.8% from April to August 2009, its best performance in 22 months. Kotak believes that this will just be the start of a significant uplift in India’s economic performance.

Nitin Jain, Principal Fund Manager for the Long Only strategy funds, Kotak Mahindra (UK) Ltd., says: “We believe that real GDP growth in 2009 will be closer to 6.0% due to this year’s drier than normal monsoon season. However, next year we predict growth will be in the range of 7-8%.

“The second half of 2010 looks like it will be particularly strong as earnings growth and availability of credit should increase. Current estimates for earnings growth are 7.4% for the 2010 financial year (1st April 2009- 31st March 2010) and a substantial 21.7% for financial year 2011 (1st April 2010- 31st March 2011) – Source: Kotak Institutional Equities.

“The lack of credit has been one of the main factors restricting economic growth in India this year but we are already seeing signs that the situation is easing with a pick-up in auto and housing loans as well as increased equity raising by companies.

“While the Reserve Bank of India (RBI) in its recent quarterly credit policy review, increased the statutory liquidity ratio (the amount banks are required to hold in liquid assets such as cash and gold) by 1% (first step towards exiting the easy monetary policy), it kept policy rates unchanged. This signals that RBI will exit the easy monetary policy in a calibrated way until the availability of credit in the economy has completely recovered.”

Nitin Jain explains that India has avoided the very worst of the global economic crisis for a number of factors, including the predominantly domestic economy.

“India’s relatively strong performance has been, and will continue to be, driven by its high savings rate, attractive demographics and rising urbanization. It is clearly in the midst of a huge domestic consumption boom led by its young population yet there remains a huge untapped market in India.”