India's Growth Will Remain Strong
12/01/2007 12:00 am EST
Asked by interviewer Howard Gold how India could sustain its growth surge when shares have already climbed more than 600% in the last five years, Lalwani admitted that while valuations are quite rich-and he is expecting a short-term consolidation-the Indian markets continue to be attractive for many reasons.
He noted that India has no subprime issue, its economy is only 15% export-reliant, with a very large domestic market, giving the country a thicker insulation from economic downturns. India's middle class of avid consumers-roughly about 250-280 million-strong-is estimated to exceed 325 million by 2010.
Also, the country's economic growth for the year ending March 2007 was 9.4%. And while that is expected to cool down, anything above 8% is very good. One downside is India's poor infrastructure, which shaves 1.5%-2% off economic growth.
Lalwani noted that certainly there were some risks, including a slowdown in the global economy, global warming, and oil shocks. The last one strongly affects India, as 30% of the country's energy needs are met by oil and India is a major oil importer, bringing in some 70% of its oil requirements.
Asked if India was emulating China, which has tried to sew up oil supplies around the world, Lalwani responded that India has been doing some of the same, but China has been more aggressive, has deeper pockets and can outbid India. He also discussed the viability of the Indo-US nuclear pact and told Gold that it's a tough deal involving coalition politics, with an outcome that's too close to call.
Lastly, Gold asked Lalwani which sectors he currently favors and which he is avoiding. Lalwani mentioned that since India has-until recently-mostly ignored its infrastructure for the past five decades, companies in the construction, power equipment, and cement businesses look attractive. He also likes banking, autos, and pharmaceuticals.
Areas that he is avoiding include international themes and currency plays, although recently, India has undergone a trend reversal in its currency, recovering from almost 50 years of depreciation. Additionally, Lalwani said that international outsourcing companies, which have had spectacular results for the last few years, will come under pressure, while the domestic players will continue to do well as the economy grows.