Investors who are able to invest for the long-term should capitalise on depressed valuations in India, according to Ocean Dial’s David Cornell.

Stocks in the region have taken a battering recently as a result of an economic slowdown and an indecisive government viewed as incapable of halting this trend.

Over the last few years the country has been growing at an annual rate of nearly 8 per cent, but in the last quarter of 2011 this shrank to 6.1 per cent, the lowest level since 2009. The International Monetary Fund (IMF) is the latest organisation to cut the region’s growth forecast, predicting 6.9 per cent for 2012.

However, Cornell, the manager of the India Capital Growth investment trust, says that the gloom surrounding the economy overlooks the long-term potential of the region and this means that investors who can afford to tie up their money for more than five years can buy Indian companies at an attractive price.


"The Indian situation is being determined by the failure of the government to deliver the reform which is much needed for the country to grow," he explained.

"That’s a short-term problem and it doesn’t seem like it is getting any better at the moment but the way we look at it is that India is a really long-term story and it takes time in a democracy of a billion people to get things done. You have to be patient as an investor and wait for the right opportunity."

He added: "India is such a strong investment case and it is very hard to predict when sentiment will turn. You have to be courageous to buy the market when everybody else is selling but it is a fantastic opportunity. We get so caught up in the short-term detail that we forget the bigger picture. When sentiment does turn, you will have missed it."

The manager points to per capita income growth of more than 325 per cent, a dramatic rise in exports and a huge increase in the savings ratio over the last 20 years as signs of the potential in the Indian economy.

He remains confident that changing demographics and wealth increases will continue to provide fantastic opportunities for investment, irrespective of the government’s lack of reforms.

"We are trying to identify companies that are going to be least affected by the slowdown. The consumer is one area. Half of the population is under 25, you’ve got a very high savings ratio and there are more and more people coming into the working age," he said.

"The financial sector is also one that we think is going to benefit from lower interest rates as the Indian government tries to kick-start the economy but also because financial products have hardly got off the ground."

"The penetration of mortgage products has been growing at about 20 per cent per year and is still at only around 4 per cent. Pharmaceuticals is also an area which we find exciting. There’s a very strong correlation between healthcare spend and real income growth."

Anyone investing in India needs to be aware of the risks. Collective funds focused on the region have been among the most volatile of any available to UK investors over the last three and five years and Cornell warns that there are still important considerations.

"Inflation is a problem because the economy is growing fast and the government is failing to deliver the kind of changes required in infrastructure to help offset that pressure."

"Every time the economy picks up, it hits a bottleneck: a lack of labour reform and a lack of roads and railways to transport goods. The demand for food is also rising and is putting pressure on prices," he explained. "However, the market is aware of that and has already priced it in."

"We try to avoid areas of the market where we think the government has excessive regulation or excessive interference."

"We recognise that for the economy to grow, infrastructure investment needs to happen but it is quite hard to find the right kind of stocks to invest in in terms of transparency, corporate governance and understanding the pipeline for growth."