Subcontinent starting to flex its financial muscles

AS A LONG-term potential for growth, India has enormous appeal. The world's largest democracy is just starting to show its development opportunities.

India has more billionaires than the UK and is showing early signs of its business success.

Commentators note impressive figures, such as the number of students graduating in engineering each year – one million. As lifestyles change, its growth is largely domestic and not as export dependent as China.

Companies that undertake infrastructure projects for roads, drainage and power generation are likely to succeed with cash injections from the government.

While the Indian stock market suffered earlier this year, money invested in well-managed funds has shown good results over the long term. In the last three years, Aberdeen Global India Opportunities has jumped an impressive 19.2 per cent, Fidelity India Focus 18.6 per cent and First State Indian by a very healthy 25.4 per cent.

Over five years, Fidelity India Focus is up over 122 per cent. Managed by Arun Mehra from Mumbai and London, it is currently mainly invested in financial, IT, consumer discretionary and industrial stocks. It is underweight in construction and engineering because the manager believes valuations are stretched.

India is already the eighth largest global market in terms of capitalisations. The current 8.7 per cent annual growth is predicted to continue until at least 2020.

One of the country's newest launches is the three-metre long Nano car, which seats four and costs just £1,300 – not much more than the cost of a set of tyres for some cars. It was unveiled at the Delhi Auto Expo in January and will have an initial 250,000 production run, but is expected to be exported to Africa, South America and the rest of Asia.

Another major collective fund is the Atlantis India Opportunities, which is an open-ended unit trust. Since its launch in November 2005, it has focused on construction, infrastrucure, cement and telecoms.

Jupiter established its Indian fund in February. Its manager, Avinash Vazirani, believes much of India's success will be fuelled by a new generation with 60 per cent of the 1.13 billion population below 30 years of age. "You have a generation of kids who want Nike shoes, iPods, etc," he says.

Telecommunications show great potential. India lags behind the rest of the globe for mobile phone penetration at only 18 per cent.

New Star is launching an Indian fund next month as a joint venture with Tata Asset Management. The latter has £3 billion assets and its pure equity fund grew 25 per cent in the past year and 52 per cent over the last five years. This new fund will invest in Indian construction, mortgage finance and telecoms among other fields.

Rather than take a single country fund, Wishart Wealth of Edinburgh recommends gaining Indian exposure through First State Asia Pacific fund.

Unlike neighbouring Pakistan, India is politically stable and has a pro-capitalist coalition government. It has 60 years of independence and appears to have fulfilled Nehru's dream of a new nation that is free, democratic and developed.