India needs action to halt slowdown

India is in need of urgent reforms to its infrastructure spending and fuel subsidy policy in its battle against slowing economic growth, according to Newton’s Caroline Keen.

Ms Keen, deputy manager on Jason Pidcock’s £4.1bn Newton Asian Income fund, said the Indian government had “not been aggressive in passing or implementing necessary re-forms to support growth” because of a focus on an election set for the spring of 2014.

“The macroeconomic backdrop remains mixed despite the recent liquidity injections,” the manager said.

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“Many sectors of the economy are slowing: even biscuit sales growth, the largest and previously most robust category in branded consumer foods, has slowed from 12-15 per cent to below 5 per cent.”

She added that Indian investment in infrastructure “remains desperately lacking”, with roughly $100bn (£62.6bn) sitting in stalled projects.

India has also been hit by a rapidly-depreciating currency. Talk of the Federal Reserve reducing its quantitative easing programme has led to investors pulling money out of emerging markets, meaning countries reliant on these short-term money flows have been suffering this year.

Ms Keen said that India’s long-standing fuel subsidy and its reliance on imported oil and gas meant that the fall in the value of the rupee against the dollar had led to the cost of this subsidy spiralling.

“Reform is urgently needed if the government is to bring both its subsidy bill and budget deficit under control,” she added.

Ms Keen and Mr Pidcock have been avoiding Indian banks due to their “vulnerability”, but have backed companies operating private hospitals and consumer stocks, which Ms Keen said have “attractive long-term investment cases”.

But the managers have less than 4 per cent of the Newton Asian Income fund invested in Indian stocks, instead preferring a bias towards Australian-based companies such as mobile phone provider Telstra, supermarket giant Wesfarmers and ANZ, Australia’s third-largest bank.

India’s main stockmarket, the Sensex index, is up 8 per cent so far this year in local currency terms, but sterling investors would have lost 4.1 per cent due to the weakness of the rupee.

Meanwhile, India’s economic growth has fallen from 9.3 per cent in the second quarter of 2010 to 4.4 per cent in the second quarter of 2013. The 4.4 per cent figure marked India’s slowest annual economic growth rate in more than 10 years.

The Newton Asian Income fund was the best-performing fund in the IMA Asia Pacific ex Japan sector in the three years to November 8, according to FE Analytics, gaining 35.5 per cent compared with the sector’s average 4 per cent gain.

The fund’s benchmark, the FTSE All World Asia Pacific ex Japan index, gained 8.4 per cent in the same period.