Indian stock market rebounds to all-time high but is there an investment case?

4th November 2013

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The Indian stock market, the Sensex, has jumped by 18.9% since its low in August and while the emerging market faces a number of challenges, long-term potential remains according to experts.

The rebound is on the back of the US delaying its tapering of Quantitative Easing while confidence was also boosted by Raghuram Rajan, the newly appointed head of the Reserve Bank of India, raising interest rates in an attempt to bring India’s persistently high inflation under control says Adrian Lowcock, senior investment manager at Hargeaves Lansdown.

He says: “The rebound has been very strong but there are a number of headwinds that mean investing now may be risky. Tapering of QE has only been delayed, India has many structural issues that need reforming and elections in April 2014 add a significant level of uncertainty for investors.

“That said the longer term potential for India remains. The country has a young and growing working population which should contribute to economic and stock market growth.”

Structural reform

India’s current government has not made much progress with important reforms such as overhauling existing labour laws. It has also made little investment in infrastructure as the world’s largest democracy has struggled with its own bureaucracy. “However national elections in April 2014 may lead to a change in leadership who may be able to make further investment into infrastructure which could be positive for investors,” adds Lowcock.

Fund tip

Lowcock rates the First State Asia Pacific Leaders fund, whish is run by Angus Tulloch and Alistair Thompson. Lowcock says: “They are optimistic about the long-term prospects of the Asia Pacific region, but are wary of the consequences of high levels of debt in developed nations, and slowing growth in China. Against this backdrop they continue to favour high-quality businesses with robust balance sheets and strong cash flows, run by excellent management teams. The fund currently has 16% invested in India, a country the managers have been building up exposure to over the last few years, particularly during periods of stock market and Rupee weakness.”

Investors should prepare for short-term volatility when investing in emerging markets and a cautious approach when considering the potential opportunities of investing in India is highly recommended.

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