5 Strong Reasons To Invest In India

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Includes: INCO, INDA, INDY, INXX
by: JaZaa Financial Advisory

Summary

India has a GDP growth rate of 7.6%, one of the best.

Improving foreign investment environment.

India is one of the most favorite destination for foreign investors.

Low oil prices helping the the country's economy.

Government policies promoting growth and investment.

1. One Of The Best GDP Growth Rates

The GDP of India has seen a growth of 7.6 percent in the past financial year, and the country's growth rate has overtaken China's.

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Inflation has come down from 6.37% in 2014 to 5.88% in 2015. Personal disposable income has increased from INR127.9 trillion (USD1.9 trillion) to INR138.2 trillion (USD2.09 trillion).

Foreign exchange reserves have been steadily rising (now at USD353 billion), making it easier for the Reserve Bank of India to handle currency volatility.

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2. Improving Foreign Investment Environment

India is a better option for foreign investment compared with the other developing countries. As per the United Nations Conference on Trade and Development World Investment Report 2015, India now grabs the 9th position in the Top 10 countries attracting highest FDI.

2015 witnessed 24.5 percent increase in FDI inflow (USD44.9 billion) compared to 2014 (USD36 billion). India has more liberal and transparent policies among the emerging and developing countries. FDI norms were relaxed for 25 sectors in September 2014 (retail, insurance, service). In 2015, FDI norms for 15 sectors including construction, civil aviation, banking, broadcasting were further liberalized. Banks are now allowed up to 74 percent FDI. The government of India took several initiatives such as "Make in India" and "Digital India" to promote foreign investment.

3. Bullish Investment Sentiment

According to a poll conducted by Bank of America Merrill Lynch, for 43 percent respondents, India was one of the most favorite equity market for the global investor for the year 2015 followed by China at 26 percent.

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Due to the recent reforms, initiatives and overall attractiveness of Indian corporates, the Indian stock market remained attractive to foreign investors. FIIs have invested a net of USD89.5 billion in 2014-15.

India has also allowed Qualified Foreign Investors to directly invest in the Indian stock market to attract more foreign funds and reduce market volatility.

4. Favorable Global Oil Prices

Oil prices play a significant role in the economics for an oil-importing country like India. India is one of the biggest oil-importing countries. Any positive and negative change in oil prices have an immediate impact on the Indian economy and its GDP growth rate. Reduction in oil prices not only directly reduces the import burden, but also has a multiplier effect across the whole Indian economy.

Significant reduction in oil prices helped the country to reduce its import fund and to reduce the current account deficit. However, some of the effects of low oil prices were offset by the depreciating rupee.

5. Encouraging Government Policies

The Indian government has taken relevant measures to strengthen its investment growth and to make it one of the strongest economies of the time. Make in India scheme is started by the government to give a push to the manufacturing industry. The scheme invites foreign firms to establish manufacturing facilities in India for local as well as export markets. The scheme has received investment commitment of INR15.2 trillion (USD220 billion).

With the aim to provide assistance to new technology innovators, a separate online portal has been formed by the information technology department to bolster Indian government's programs like Start-Up India and Digital India. These schemes are based on boosting bank financing for start-up ventures and promote new entrepreneurs. The main focus is on making India a hub for new start-ups, simplifying the process of start-ups, tax exemption for the new start-ups and easy availability of funds for them.

Special economic zones (SEZs) are developed by the government to promote convenient trading and manufacturing hubs for the purpose of increasing the exports of the country. These SEZs also provide tax benefits for the companies operating in it and serve as duty-free import zones as well.

A proposal to reduce the corporate tax to 25% from the current 30% could be a major booster.

Challenges Remain

Around all positives, some challenges remain to be handled. A lack of infrastructure or underperforming infrastructure including roads and power is one the key obstacle. It has been a bottleneck for expansion of key manufacturing and technology hubs.

Another challenge is that total NPAs (non-performing assets) or bad loans of the Indian public sector banks have increased significantly in the last few years. The Reserve Bank of India disclosed in response to the RTI filled by the Indian Express that bad debts by the end of March 2015 were INR525.42 billion (USD7.93 billion), which was three times more than March 2012.

Strengthening of the USD against INR has created inflationary tendencies in the country and made imports costlier. Pending government policies like GST (Goods and Service Tax Bill), which talks about a national value-added tax and exemption of other indirect taxes are still under review.

Conclusion

Due to considerable growth in disposable income and favorable demographics, the sectors that we like in India are pharma, FMCG and consumer goods. Considering the effects of schemes like Make in India, the manufacturing sector could be a good investment option. Huge investment and expansion potential in infrastructure makes it another attractive option.

For investors looking for diversification and long-term value investing, India is one of the best option. A foreign investor can invest directly in the Indian market through FDI, foreign portfolio investment and foreign venture capital investment. US investors can easily invest through ETFs and ADRs. The iShares S&P India Nifty Fifty Index ETF (NASDAQ:INDY) would be the easiest choice. Other funds to look out for are the iShares MSCI India Index ETF (BATS:INDA), EGShares India Infrastructure ETF (NYSEARCA:INXX) and EGShares India Consumer ETF (NYSEARCA:INCO).

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.