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India's bullish statistics are too big to ignore
India's economy appears to be positioned for success based on several critical indicators that could lead to compelling returns for certain companies, says Fidelity's Bill Kennedy.
- The outlook for India's equity market is about as favorable as it's been for quite some time, in the eyes of Fidelity Portfolio Manager Bill Kennedy, who has been visiting and investing in this emerging market for 30 years.
- "The economy's structural drivers make me highly optimistic about prospects for stocks in India," contends Kennedy, who manages Fidelity Advisor® International Discovery Fund.
- Chief among them, in his view, are the nation's highly advantageous demographics, particularly its standing as the most populous country in the world, recently overtaking China. Moreover, Kennedy notes that the population in India is young, with a median age of 28.
- "More people moving into the workforce translates into income growth, which, in turn, fuels the nation's economic growth," he explains, noting that these workers likely will increase spending on big-ticket purchases, such as autos and homes.
- According to Kennedy, India has one of the highest savings rates of any emerging market, with little consumer debt.
- "In addition, I'm impressed by the highly talented and knowledgeable corporate leaders I've met in India," says Kennedy.
- Specifically, he highlights that some management teams are keenly focused on driving the best returns from existing assets, resulting in better balance sheets and higher returns on equity than many of their emerging-markets peers.
- In managing the portfolio, Kennedy takes a long-term view, focusing on high-quality companies with above-average growth prospects that are trading at reasonable prices.
- He particularly likes businesses that have stable and high returns on capital, durable competitive positions, consistent profitability, solid free-cash-flow generation, good balance sheets, and management teams whose interests are aligned with those of shareholders.
- Kennedy also notes that India's government is pro-business, in addition to being a democracy that is largely politically neutral.
- "To this point, I believe that as geopolitical risks in other key emerging-market economies remain on the rise, India could appeal to more foreign investors, potentially propelling its equity market," Kennedy points out.
- As of October 31, the fund had about 5% of assets in India, making it the portfolio's largest allocation to an emerging market. The top individual overweight here was HDFC Bank, a lender and financial services provider.
- Kennedy maintains diversified exposure to India, investing across different sectors, including consumer companies, financials, and industrials. "I believe the structural opportunities in India can be found in different segments of the market, including infrastructure companies, financial services providers, and formalized retailers, all of which provides a compelling investment opportunity," Kennedy concludes.