After a strong if volatile performance in the wake of the election last year, investors in India have seen some weakness over the past month.
Far from reflecting a weakening of the investment case, Baring Asset Management believes this presents an opportunity as the long-term investment case is undimmed and market expectations for earnings growth at companies had simply risen to levels which were unrealistic in the short term.
The government is operating much more effectively than the previous government, Baring Asset Management remain confident that the earnings growth being sought will start to come through in the coming quarters for the corporate sector.
The progress made by Mr Modi’s government can be seen in the legislative programme, where they successfully steered three out of five important bills through parliament.
The first of these was the Coal Mines (Special Provisions) Bill 2015, which allows private sector mining in the coal sector.
The second was the Insurance Laws (Amendment) Bill 2014, which allows foreign insurance companies to hold as much as 49% of domestic firms, up from 26%. In turn, that will facilitate foreign direct investment into India.
Finally, the Mines and Mineral (Development and Regulations) Amendment Bill 2015 lends clarity to the development of mines and the allotment of new mines by allowing the central government to invite competitive offers for grant of mineral concessions in the case of coal minerals, and state governments to do the same in the case of other minerals.
Where investors have expressed concern related to the much-anticipated Goods and Services Tax (India) Bill, which would go some way to create a common market in India by dismantling fiscal barriers between states, but has been deferred.
In terms of other improvements, the working of government administration has certainly improved, as have business confidence and consumer confidence. Although this is not yet translating into capital spending, there has been higher activity in some areas, such as road construction orders.