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FAT PROPHETS:  Over the weekend officials in India said a 100 billion rupee (US$1.5 billion) fund will be set up to encourage start-ups funded by the government and state-owned Life Insurance Corporation (LIC). Regulations for starting new businesses will also be eased.  Start-ups will receive tax breaks, quicker patent applications, credit guarantees and other incentives according to Indian Prime Minister’s Modi’s speech as a conference in New Delhi Saturday, attended by big corporate hitters such as Masayoshi Son (Softbank) and Uber’s CEO Travis Kalanick.

India is fast becoming a hotbed for digital start-ups and attracting billions of dollars from abroad, with Softbank amongst the keen investors. The Start Up India programme is designed to keep that momentum humming along.

It is particularly important for India to encourage the creation of jobs. Given the diverging demographic patterns in China and India, the latter will overtake China as the world’s most populous nation over the next decade or so. But while India is home to some of the wealthiest people in the world and a rapidly growing middle class, GDP per capita is still very low, with the World Bank estimating it to be around US$1,500 in 2014. Purchasing power parity GDP per capita is much higher, but its clear that India is still on the low rungs of the ladder globally for this metric.

Prime Minister Narendra Modi is well aware of the huge reasonability on his shoulders to create a more prosperous India and his government continues to take strides to try and do so, following an approach Mr Modi has described as Sabka Saath, Sabka Vikas (participation of all, development of all). Mr Modi swept to power in 2014 with best mandate in recent history, boding well for the economy and the local stock market.

Still, after a honeymoon period, interest in Indian stocks from foreign investors waned and the rhetoric has become increasingly critical of Mr Modi’s efforts. In our view though Mr Modi continues to make strides in the right direction chipping away at the problems about as well as could be expected and the country is now the fastest growing large economy in the world, logging growth of 7.4% in the third quarter of 2015.

In India’s incredibly diverse democracy and partisan parliament we believe it was overly optimistic to expect all of India’s challenges to be tidied up with a nice bow within the space of the less than two years since Mr Modi has become the nations’ leader, even for someone who has been called by some a political rock star. There were also been some political setbacks in 2015 that have hampered progress, such as the defeat in Bihar assembly election in November.

Nevertheless, positive material changes have been made since Mr Modi swept into power and others are in the pipeline. GDP is rolling along nicely and most research groups are forecasting India to remain the world’s fastest growing major economy to maintain that momentum and remain the world’s fastest growing major economy over the next couple of years, a view with which we concur.

Inflation has pulled back, red tape and corruption has been cut. Both foreign direct investment and industrial production are on the up and Mr Modi has made some inroads into the huge infrastructure challenges India has. And India being a net importer, it is a key beneficiary of oil and other commodity price weakness. We are overweight Indian stocks in our Global Opportunities portfolio and believe proxies such as banks ICICI Bank (NYSE: IBN, initial buy $9.47) and HDFC Bank (NYSE: HDB, initial buy $64.14) can provide solid returns if held through the other side of current volatility.

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