INVESTMENT

SPECIAL EDITED BY Richard Willsher

RICHARD WILLSHER
is a finance and business writer with a
background in international investment
banking. He is the former editor of
The Investor magazine and now freelances
for, among others, the Financial Times,
and the International Herald Tribune.

BUILDING BRICS:
INDIA
IN THIS FOUR-PART SERIES, RICHARD
WILLSHER EXAMINES THE INVESTMENT
ATTRACTIONS OF THE EMERGING BRIC
MARKETS – BRAZIL, RUSSIA, INDIA AND
CHINA. IN THIS ISSUE, WE LOOK EAST

T
TOWARDS INDIA.
he numbers, skills and hard work of its people
have driven India’s emergence as a major global
economic force. This looks set to continue,
positioning the country as an investment
destination with distinct attractions.
While European and North American
economies have struggled to achieve growth, India has been
a consistently high performer over recent years. Economists
at Moody’s, the rating agency, log India’s record of growth
since 2006 as falling in the range of 6.7% to 9.6% annually,
with the lowest of these figures covering the period from
2008 to 2009, when the western world was plunged into
financial crisis. Looking ahead, Moody’s projects 8.8% GDP
growth this year and 8.1% next year. HSBC Global Asset
Management expects growth of at least 7% of GDP over the
decade to 2020 in the Indian economy (compound annual
growth rate – the year-on-year increase over the period).
Not everything in India’s economic garden is rosy,
however. For the last three years, the country has been
wrestling with government debt at around 77% of GDP.*
Public sector inefficiency, particularly in gathering taxes, is X

*CIA World Factbook

© Bruno Modrandi Getty Images

Inside this section: P19 Emerging markets: Spotlight on India P22 Hard Assets: Investing in the tangible
P24 Active vs Passive investing: Which is best? P26 Structured products: Are they for you?

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 Snapshots of India
Despite the global
economic downturn,
India’s economy grew by
8.8% year-on-year in the
second quarter of 2010
(as quoted in the Financial
Times, 31 August 2010).
That’s its fastest rate of
expansion in almost
three years.

INDIA BY NUMBERS

3,287,263
World’s seventh largest country
by area (square km)

64%
Proportion of the population in
the age group 15 to 64. 30% of
population is under 14 years
not helping matters. Generally, income levels among India’s of age (2010 estimate)
vast population are low, and “inadequate physical and

$3,100
social infrastructure,” as Moody’s puts it, could hamper
economic development going forward.
But then, this is an emerging market. What attracts NEW GLOBAL CHALLENGERS
investors to India are its prospects for growth and In this regard, the country has a rapidly increasing, affluent
development. One of the key features of India, versus other Per capita GDP middle class that now numbers around 200 million; roughly
emerging economies such as China and Russia, is the rapid (US$, 2009 estimate) equal to the entire populations of Germany, France and the
Images © Photoshot, Belinda Lawley Panos Pictures, Dinesh Khanna Axiom, David Sutherland and Dream Pictures Getty Images

development of its internal market rather than its exports: UK added together. And these people are buyers of goods

this is generating huge amounts of income for some of its
growing domestic businesses.
“The rise of the consumer in India – there’s a lot of
demand due to higher incomes and aspirations – is a
key driver of economic growth,” explains Sanjiv Duggal,
manager of the HSBC GIF Indian Equity Fund.
$3,560bn
Fifth largest Gross Domestic
Product (US$, 2009 estimate)
and services that are sourced or delivered from overseas,
as well as from the domestic market: indeed India is now
reckoned to be among the ten largest retail markets in the
world and growing fast.
At the same time, the Boston Consulting Group (BCG)
has pointed out in its latest New Global Challengers report

“For example, a particular pocket of opportunity is in
passenger car sales… in the financial year ended
March 2010, passenger car sales in India grew at their fastest
pace in six years, up 25% to 1.53 million units. In addition,
the housing market is forging ahead, enjoying strong
demand due to a major shortage of quality housing, and we
are continuing to find opportunities amongst the under-
8.8%
Estimated GDP growth this year
that India is home to 20 of 100 companies that are based
in rapidly developing economies but are contending for
global leadership in their fields of operation. They include
firms such as United Spirits, the world’s second largest
forging business, Tata Consultancy Services (TCS), Asia’s
largest services and business process outsourcing company,
and Bajaj Auto and Mahindra & Mahindra the automotive

owned real estate sector. There is also a strong government
focus on improving healthcare, education and training, and
physical infrastructure.”
Sanjiv Duggal adds: “Growth in per capita income
means that India is near the point where we can
expect consumption to take off sharply. The nation’s
demographics, with its young population, will also continue
to bolster economic growth.”
1.157bn
World’s largest democracy and
second largest population
(July 2010 estimate)
All CIA World Factbook
equipment makers.
HOW CAN YOU SHARE IN INDIA’S SUCCESS?
So the question facing investors is how to share in the
growing prosperity of such Indian companies. HSBC’s
Sanjiv Duggal is cautious: “We believe when it comes to
investing in India, a strict and disciplined approach is a
must. Like any emerging economy, while the potential for
 INVESTMENT SPECIAL

Local colour
With 29 languages having more
than one million native speakers, HSBC’s
and a total population of over
one billion people (CIA World Non-Resident
Factbook), India is one of the
most diverse nations on Earth. Indian services
There are between 20 and
25 million Non-Resident
Indians (NRIs) living around
the world at any one time
(Indian Ministry of Non-
Resident Indians’ Affairs,
2010). According to the
World Bank, India received
Spending power Economic growth has led to rapid changes in US$51.6bn (£32.3bn)
Indian society: the Asian Development Bank predicts that the in remittances from those
number of middle class Indians will reach one billion by 2030.
NRIs in 2008: this is the
highest total for any country
in the world.

These huge numbers

demonstrate the need that
NRIs have for services to
enable them to send funds
home to their families, and
to help them with their
banking needs while they
are overseas. Because of
its unique global presence,
HSBC is able to assist its
200,000 NRI customers, of
whom roughly one quarter
are UK residents.

growth is robust, investors should be prepared for some The emerging market opportunity offered by India is Global Indian Initiative
volatility, which can be caused by a number of factors. considerable. Given the still very low level of per capita “The Global Indian Initiative,
“For example, the government’s approach is one of income of the Indian population in general, and the of which NRI business is
many layers, peppered with bureaucracy. The reforms scale of poverty and lack of infrastructure across the a key element, shows the
that are needed become a tug-of-war between vested massive sub-continent, this opportunity is likely to remain importance that the Group
interests, slowing down badly-needed progress, and attractive for some time to come. The risks involved attaches to customers of
any potential reforms could be a potential threat to are also significant, so investors face the challenge of Indian origin,” explains
markets in the short term. In addition, rising prices of balancing the risks versus the potential rewards on offer. Sameer Kaushal, Head of
commodities such as crude oil and fertilisers, on which it HSBC’s NRI services in the
is heavily dependent, could have a negative impact on the UK and continental Europe.
“As it unfolds in the next
economy, while the nation’s monsoon season can always
have a negative economic impact by slowing progress.”
MORE INFORMATION couple of years, HSBC will
Sanjiv Duggal describes buying individual shares in increasingly be able to meet
If you’re interested in diversifying your investment portfolio, the needs of Global Indian
Indian companies as “a high-risk strategy.” He says that
go to www.hsbc.co.uk/funds or call 0800 520 420 for more customers, based on our
the Indian market can be highly volatile, but should
information. For a full directory of HSBC’s telephone services, international presence and
be a core part of any growth portfolio: “By going for a
see page 46. especially strong capabilities
professionally-managed portfolio of shares, investors are
giving themselves the best opportunity of making decent Please remember that the value of investments in any of these areas in countries where expatriate
returns over the long term, with far less risk than if they could fall as well as rise, that it is not guaranteed, and that you could Indians live in significant
were to buy into individual companies. For example, the get back less than your original investment. This can also happen numbers.”
HSBC GIF Indian Equity Fund typically holds between as a result of exchange rate variations. Stock market investments
50 and 70 stocks, and has significantly outperformed the should be seen as a medium- to long-term commitment, ie for at
market since its launch in March 2006.” least five years. Investors are advised to consider carefully the For more information about
This fund, incidentally, currently holds almost special risks of investing in emerging market securities. These HSBC’s NRI services call
US$6.4bn (£4bn) in assets under management, making it economies have been and may continue to be affected adversely by 0800 121 6443.
the largest offshore Indian fund in the world. economic conditions in the countries in which they trade.

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