MIKE SELL

By MIKE SELL

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Trip report: India – December 2019

Mike Sell and Kieron Kader spent 10 days of December in India travelling to Delhi, Mumbai, Chennai, Lucknow and Kanpur. The team visited 38 companies including 20 of our fund holdings. In addition, they conducted a range of channel checks and also met one of the Transforming Lives Awards winners, Phool, where they held a consumer survey panel.

 

CONCLUDING THOUGHTS

We had said that we expected to see growth from the festival season onwards. Despite the last two GDP prints of 5% and 4.5% which were worse-than-expected and caught everyone by surprise – our initial view has been confirmed by our detailed on-the-ground meetings. The short-term volatility has been pervasive and worse than expected, but the stimulus provided by Modi’s government, the accommodative monetary policy and the strong monsoon has started to buoy the economy from November, and we should thus see improving growth and sentiment. There have also been delays in the construction sector, which have now started to subside even in the key state of Maharashtra which has experienced a change in government. The Kharif crop harvest between January and March will be a strong support for the rural economy. Overall, our expectation is for growth to follow a U-shape recovery rather than a V-shape, with the financial sector a noticeable laggard. Thus, we expect GDP growth of 3.9 – 4.7% in Q4 followed by 5.1% in Q1. Longer term, our view is that the liquidity issues, demonetisation and GST are ultimately positive, as they leave better quality companies in the system and refocuses them on proper capital allocation.

Overall, we remain positive on India and combined with current valuations (especially in the mid cap space, which are compelling, see figure 11 and 12 below), we believe that this market has the potential to deliver one of the best performances within the EM space over the coming years.

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