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Perspectives on India

Nick Niziolek

Financial headlines are focusing on deceleration in emerging markets and near-term revenue and earnings pressures for companies that derive revenues from EMs. There’s been considerable press attention given to India, as structural issues are being complicated by pending elections, investment-led slowdown, and sputtering foreign direct investment policies. These in turn are contributing to a weaker rupee, which is especially unwelcomed in  a consumption-driven economy.

In our emerging market portfolios, we have been reducing exposure to India throughout the year as inflation continues to tick higher, growth remains subdued, and current account deficits remain high.  However, it doesn’t mean there aren’t still reasons for investors to have exposure to Indian companies.

The EM story isn’t one dimensional . The growth is about more than big U.S. and European companies selling soda and chocolate to EMs, or even providing luxury goods to a new crop of  billionaires.  EMs are suppliers to worldwide markets, in ways that extend beyond commodities.

We have pared exposure to India but are not jettisoning Indian companies wholesale. We are positioning portfolios to capitalize on companies that are tied to developed markets and which are less vulnerable to a weakening rupee. India is home to global outsourcing companies, staffed by highly educated professionals, as well as companies which are supporting the worldwide demand for health care by producing affordable generics.  These are the areas that we are presently most interested in, along with some defensive staples, like tobacco companies, which tend to hold up well even when other domestic-demand-driven companies slow.

Our research efforts are focused on identifying these bottom-up growth stories, within our top-down framework.  Simply put, if the developed markets get stronger relative to EMs, it doesn’t mean that EM growth opportunities aren’t still out there.

As a result of political or economic instability in foreign countries, there can be special risks associated with investing in foreign securities, including fluctuations in currency exchange rates, increased price volatility and difficulty obtaining information. In addition, emerging markets may present additional risk due to potential for greater economic and political instability in less developed countries.

The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Information contained herein is for informational purposes only and should not be considered investment advice.

The information in this report should not be considered a recommendation to purchase or sell any particular security.

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