Wednesday, August 27, 2014

India's economic growth at two year high


India's economy may have expanded at its fastest pace in more than two years last quarter, helped by rising industrial production and growing consumer optimism.

Gross domestic product in the three months ended June 30 likely grew 5.5% from a year earlier, according to the median estimate of a poll of 19 economists by The Wall Street Journal. If the growth meets estimates, it will be a significant step up from the 4.6% in the two preceding quarters, and the highest India has seen in nine quarters.


In the first three months in office, Prime Minister Narendra Modi's government has taken some cautious but encouraging steps. It has allowed greater foreign ownership in defense companies and opened up railways to foreign investment. It has also moved to lower some bureaucratic barriers to business.

While some investors and analysts say they are still expecting much more of Mr. Modi, the stock market has climbed to new highs amid optimism that the new leader could eventually prove to be India's most business-friendly prime minister. There are already early signs that businesses and consumers are spending more.

As I wrote early this summer I expected the election of Mr. Modi. a pro-business politician, to lead to a perception change at the margin regarding India's prospects. It appears the optimism surrounding his election is carrying over into the economy and the stock market. I am playing this via the Matthews India Fund which is currently up around 30%. In order for the economy to continue to grow Mr. Modi will have to push on with the reforms and get results. It appears at least for now that the Indian economy will see growth above what has occurred in the last few years, which is translating into stockmarket gains.

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