FMG (EU) India Opportunity Fund gained 2.5% in the 2nd Quarter of 2017

During the quarter, inflows from domestic investors of $3.1bn outstripped inflows from foreigners of $2.1bn. We are happy to see the enthusiasm by locals for Indian shares and the rising allocation of Indian households towards equities points to sustained flows and also reduces the prospect of volatility that may arise from the sudden withdrawal of foreign monies. Inflation remains around the 4% level while the country’s fiscal deficit is 3.5%.

Starting next quarter (1st July), we get another introduction of prime minister Modi’s pro-reform/growth agenda when the goods and service tax (GST) gets implemented. The GST is an extraordinary measure, perhaps the most significant reform in decades, broadening the tax-base, and benefitting the organised sectors over the non-compliant sectors. This may translate into improved national tax resilience and support every other corresponding economic metric.

It is hoped that the next time RBI meets in August-17, a 25bps rate cut materialises. The Indian economy is expected to grow at a healthy 7.5% for the current fiscal year according to the International Monetary Fund.

The coming few quarters have a lot to offer us in terms of expectations. The seasonal festive spending is expected to start from early September this year, better monsoons are likely to improve growth, re-stocking post GST introduction is expected to benefit larger organized players, and the base effect of demonetization (when 85% of the cash was voided) of last year should provide a good year-over-year ‘jump effect’.