DIY Investor Magazine
|
June 2017
14
Avinash Vazirani manages the Jupiter India Fund
REFORM AND STRUCTURAL CHANGE IN INDIA
India is currently undergoing a period of change, and in
my view there are several ongoing developments which
mean that the long term investment outlook for India is
positive. I believe India has great potential for growth
and there is a wide range of opportunities for investors.
In my view, there are five main factors that I think will
drive the long term profitability of Indian companies and
which are currently under-appreciated by the market:
political stability, the introduction of direct benefit
transfers (DBT), the implementation of a country-wide
goods and services tax (GST), increasing access to
high-speed internet and a shift from physical to financial
savings.
POLITICAL STABILITY
India’s latest round of state elections saw a good set of
results for Prime Minister Modi’s Bharatiya Janata Party
(BJP), particularly in the highly populous state of Uttar
Pradesh – home to 16% of India’s population – where it
won 312 out of 403 seats . In my view this is a welcome
sign of political stability from which India stands to
benefit, as it shows the public is behind Modi’s ongoing
regulatory reforms, despite the destructive impact of last
November’s currency demonetisation (whereby 86% of
India’s currency by value was taken out of circulation ).
It indicates there is a good chance Modi will be re-
elected in 2019, which would mean political visibility for
the next seven years.
INTRODUCTION OF DIRECT BENEFIT TRANSFERS
The government is moving away from subsidies towards
a system of direct benefit transfers (DBT), where
benefits are deposited directly into recipients’ bank
accounts. This has all been made possible by India’s
universal biometric ID card scheme (“Aadhaar”), under
which 99% of India’s adult population has now been
registered.
Not only will this save the government money as
leakages will be reduced, but in my view, it will also
lead to an increase in consumption and will encourage
those on low incomes to join the formal banking system.
DBT is currently in the process of being rolled out and
several existing schemes have already been replaced,
with little political opposition.
INTRODUCTION OF A COUNTRY-WIDE GOODS AND
SERVICES TAX
The final resolution enabling the goods and services
tax (GST) has been passed and the government now
intends to roll it out in July 2017. India currently has a
patchwork of state goods and services taxes, which
will be combined into a single tax regime. Not only
should this increase central government tax revenues,
but it should also provide a major drive towards the
formalisation of the economy and lower company
logistics costs, vastly increasing efficiency. Listed
companies especially should benefit, as they will likely
take share from tax-evading competitors.
Increasing access to high-speed internet
We have seen an inflection point in internet usage in
India, as price competition in the telecommunications
sector has encouraged the proliferation of mobile
data. One telecom provider recently disclosed that its
100 million subscribers use on average around 10 GB
of data per month . India is now the second largest
