Sectors which have been focus of Government Reforms
The government focused on some key areas of the economy and started reforms to benefit the overall economy.
· Telecommunication: New Telecom Policy was introduced, opening the sector to private participants transforming India's telecom sector as one of the largest and the fastest growing telecom markets in the world.
· Roads: Road projects have improved connectivity, in turn opening up various business opportunities, simulating consumption, production and need for more better infrastructure.
· Power: Reforms like FDI in power generation, 5 year tax holiday and assured returns on investment, opening up for private, Electricity ACT 2003 etc, led to improved efficiency and opportunities.
· Banking & Financial Service: Opening up for private players, allowing nationalized banks to offer up to 49% of equity to public, introduction of Prime lending Rates & removal lending rate controls, raising of FDI Limits of Private banks to 74%, led to an increased competition thus increasing penetration and efficiency.
· Tax reforms: Introduction of VAT simplified taxes, increased Tax revenues and compliance. Further if GST (Goods and Services Tax) is introduced it will lead to increased output and productivity, and also contribute significantly to national income and GDP leading to higher tax compliance and ultimately lower effective tax rates.
Indian Economic Growth Trend
· The Healthy growth rate of the economy in the terms of GDP over the years shows that the Government reforms in the important areas of the economy have helped it to maintain its resilience.
· In order to maintain its growth potential the economy will require support from its key sectors, thus reforms and increased spending in these key sectors will be of high importance.
· Thus there will be a large number of companies that will benefit from the government's significant outlay.
Reforms and increased Government spending presents Long Term Investment Opportunities.
Sectors in Focus for Reforms
· Banking & Financial Services.
· Physical Infrastructure
· Power
· Education
· PSU Divestment
· Oil & Gas
· Fertilizer Sector
· Retail
· Telecom
· These sectors are of prime importance for the growth of any country's economy and currently Indian Government is taking progressive measures for their development.
· Thus these sectors currently present long term investment opportunities.
Favorable environment for Reforms
· The environment for the reforms is conducive with a strong pro-reform Government at the center and little dependence on allies, the stage is set for some major reforms to be carried out.
· Better capital availability: More foreign and private capital with higher political visibility and better prospects of long-term growth
· Reforms: Allowing higher FDI, developing financial markets (incl. corporate bonds), GST, Direct Tax Code
· Strong infra focus: Higher spend on physical infra to achieve sustained 9% growth
· Containment of deficit: Disinvestment, free pricing mechanism, alternate sources, of finance, eg. 3G spectrum
· Better governance: Better execution, appointment of technocrats to head initiatives (e.g., Nandan Nilekani for UIN)
· Inclusive growth: Continued focus on rural and human infra to make growth more inclusive.
Invest in companies likely to benefit from India's Economic Reforms
· Governments' Focus on the sectors for reforms changes according to the need of the economy.
· Thus you should invest in those sectors which are fully supported by the government, for long term growth potential.
· Ideally an investment theme which concentrates on such sectors which have growth potential supported by government will be a good avenue for portfolio diversification.
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