Current stock market activity in India is not reflective of the investment opportunities in the region, says JPMorgan Asset Management.

Speaking at a recent web conference, Ted Pulling of JPMorgan Indian Investment Trust told investors, ‘India is currently in an excellent earnings environment and is the second-strongest growing economy after China. GDP is currently around 8.8 per cent and, whilst we do expect a deceleration in the short term, future economic growth will be sustained at 7.5 per cent to 9 per cent over the longer term.’

India imports over half of its energy, including oil and coal. As a result, the trade deficit in India has widened as energy costs have gone up, which has had a knock-on effect on the the value of the rupee.

The Indian market is down in US dollar terms, partly as a result of investor sentiment and the rupee losing ground. But despite this, Pulling expects to see the exchange rate stabilise and is confident that India has the reserves to ensure this is not a long-term issue.

Looking at the investment opportunities in the country, Pulling is confident there are three main growth areas within the region that demonstrate India’s growing stature in the global market place – namely infrastructure, investment and urbanisation.

He says, ‘The result of better road systems and ports is expected to be increased flows of activity. At present, power is twice as expensive in India as it is in China, with half of the population having no access to any power. The result is a potentially serious impediment to economic growth, but the infrastructure plans mean that these issues will be addressed.

‘We already know that urbanisation has led to an increase in consumption. At present 30 per cent of India’s population lives in cities, but we expect this number to increase by around 5 per cent over the next decade. This large population shift will lead to greater demand for consumables.’

However, Pulling warns there are some short-term risks and challenges which will impact the markets in the short term, including the forthcoming national election in 2008-09, where policy uncertainties are a concern to investors, and rising inflation, which is not helped by government-subsidised oil prices.

Additionally, the trade deficit, high interest rates and elevated commodity prices are all impacting the stock market.