India: Safe To Go Back?

Schroders’ Indian Equities Fund Manager, Manish Bhatia, looks at how investors should position themselves for the next phase of India’s economic cycle and discusses whether the worst is now over for the country’s equities

Almost everything that could go wrong within an economy went wrong in India in 2011. Inflation soared, corruption scandals erupted, and the government went through a period of policy paralysis. However, in 2012, India’s markets got off to a stunning start, surging ahead of the wider region by a strong margin. But just as the rally started to seem too good to be true, it proved itself to be just that.

Investors will be forgiven for looking at the performance of Indian equities year to date, and wondering what has gone right in India. The brief answer is,

unfortunately, not much – we believe the markets bounced too high, too fast, and the slump we’ve seen more recently may be a sign that we are in for a few more turbulent months for India.

While this does not mean that a genuine recovery is not on the horizon, it does mean that investors may need to hold on tighter for a little longer. Our view is that a more sustainable rebound is likely to occur in the second half of this year but, until then, Indian equities are likely to endure a few more twists and turns.