India is ‘factory of the world’ with fastest workforce growth

Pinebridge's Siddhartha Singh hones in on India's workforce growth in his search for upside in the equities market.

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Siddhartha Singh, the chief executive of Pinebridge Investments Asset Management in India, tries not to get distracted by cases of corruption, violence and other bad news that comes out of the world’s largest democracy.

And while he is betting that the prime minister Narendra Modi’s landslide election victory in May will boost the country’s economic growth, he is not concentrating on that too hard for the moment.

Instead, he is focusing on the forecast that India’s workforce will grow at the fastest rate in the world, outpacing China’s ageing population. That will help to boost his country’s industrial base, creating more jobs and bolstering the economy in the long run. Until then, Mr Singh is calmly trying to figure out which companies are set to benefit the most from that growth.

While he does not want to be drawn into revealing the names he prefers, he is upbeat about industrial and consumer companies, among others.

“The India story remains very much intact and what we have been talking about now for the past couple of years is demographics,” says Mr Singh, who oversees Pinebridge’s US$372 million India fund.

“It’s not just population growth but the fact that the working age population is growing faster than the [overall] population. And if you link this to the China story, China is ageing very fast, so India has all the potential to become the factory to the world. India can take that piece.

“I was reading a study that was saying India will add over the next two decades 220 million-odd people to the workforce compared to China, which is going to lose around 60 million people,” Mr Singh says.

Out of a population of more than 1.26 billion, there were about 487 million workers in India in 2012, the second-largest workforce after China’s, according to statistics from the US central intelligence agency.

Already, industrial production in India is on the rise.

According to HSBC’s purchasing manager’s index (PMI), Indian factory output grew in October for the 12th consecutive month thanks to an increase in export orders. The London-based bank said its India PMI rose to 51.6 points from a nine-month low of 51 hit in the previous month, according to Reuters.

In the survey, which is regarded as a harbinger of industrial and economic health, a reading of more than 50 points suggests expansion while anything below indicates contraction.

HSBC attributed the growth to good annual rains, falling commodity prices and the rising pace of economic reforms under India’s new government that has come to power with a clear mandate.

Since assuming power, Mr Modi lost little time in his plans to overhaul the country’s economy, Asia’s third-biggest. As well as moving towards market-based energy pricing by removing energy subsidies, Mr Modi is also getting ready to pass a goods-and-services tax, to open up more to foreign investment as well as to better target subsidies for fertilizer, cooking gas and food more toward the poor.

As a result of the optimism, the S&P BSE Sensex Index, the country’s benchmark measure of equities, has gained 33 per cent this year, making it the fifth-best performing index in the world.

Even that has made Mr Singh, who says he is normally unmoved by short-term price movements, a bit skittish.

“Prices have gone up too fast, too quickly,” he says. “To be honest, we are anxious. We are sitting in the bazaar. I still think, though, that markets are trading at 15 per cent to 20 per cent discount to their fair value. I am not typically going by the price to earnings multiples. I am going by market cap to GDP ratio, which Warren Buffett keeps talking about.”

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