The global downturn has given added impetus to the privatisation process in India as the Government looks to balance its budget. The upcoming IPO for Coal of India was 15 times oversubscribedreflective of a dynamic which will serve to reinvigorate the Indian economy and ultimately spell good news for JP Morgan Indian Investment Trust ( JPMorgan Indian Investment Trust (LON:JII) ).
Privatisation is just one part of the economic liberalisation process with de-regulation, increased openness to trade and the strengthening of private property rights also being important. Nevertheless it is a key ingredient as removing the dead hand of Government control can shake up industries to become more efficient.
General equity issuance in India has been greeted with strong investor enthusiasm with 121 initial IPO's do far this year, four times the number of a year earlier. In part this is driven by foreign investor enthusiasm with $7.1 billion being poured into Indian stocks and bonds by foreign investors in September which was a monthly record.
Whatever the driver the Sensex, India's key index, is trading at around the highs it hit in January 2008. As such JII has closed above £5 for the first time recently. This compares to a high of 494.5p in2008 and a subsequent low of £2 in the economic downturn.
Stock markets increase on the back of earnings growth and the way in which those earnings are rated. In turn, earnings growth is drive by strong economic growth. A good sector to illustrate this relationship is the financial sector as this makes up a third of JII (an overweight position) and is domestically focused. As India grows, the new middle class increases savings, insurance purchases and also borrows for areas like education and housing finance. As the intermediary in this process the Indian financial sector is therefore experiencing long-term profits growth as business volumes expand.
This boost to earnings from economic expansion will continue as the factors driving economic growth remain. A key driver is population growth which will continue for decades to come due to the high proportion of young people in India. The liberalisation process which has boosted economic output is also continuing as the Government has the courage to increase the privatisation momentum.
More economic openness, combined with…
