Fruitful passage to India
AS THE UK appoints its first ever Prime Minister of South Asian heritage in Rishi Sunak at the start of the country’s Diwali religious festival, investors have good reasons to turn their attention to India.
The International Monetary Fund called the country a “bright spot on a dark horizon”, and its stock market has held firm in a tough year for others.
Global stock markets have fallen around 15 per cent over the last year, with emerging markets down 25 per cent, but India is rising at a solid 4.7 per cent, says investment platform FundCalibre. That follows a barn-storming 2021, when the MSCI India Index grew 28.86 per cent, after rising 18.64 per cent in 2020.
Emerging market nations are still relatively risky, but it may be worth some exposure to take advantage of their faster growth prospects.
The Indian economy and stock market have outperformed while everywhere else flounders, said Juliet Schooling Latter, research director at FundCalibre: “India is a low-income, fast-growing economy, at an early stage of urbanisation with a young and increasingly dynamic population.”
It is benefiting from the manufacturing shift from China, and its “Make In India” initiative has boosted exports.
India has a lower inflation rate too at 7.4 per cent in September, against 10.1 per cent in the UK.
Prime Minister Narendra Modi has boosted infrastructure more in the last 10 years than the previous 65, and his move to a digital economy is helping to stamp out corruption.
The Indian stock market has more than 4,400 listed companies and can act as a diversifier to China, as there is little correlation between performance.
Yet it faces two headwinds. Schooling Latter said the first is high oil prices, as India imports much of its energy. Every $10 increase in the price of a barrel hikes its trade deficit by 0.4 per cent of GDP, according to Alquity. “This is manageable, given India has $573billion of reserves, but may dent the investment case,” she said.
Recent stock market success means that shares are expensive, with MSCI India now trading at 22 times average company earnings, while the long-term average is lower at between 13 and 16 times earnings.
Schooling Latter recommends three funds for anyone tempted. Goldman Sachs India Equity Portfolio invests across the economy in a range of small, medium-sized and larger businesses, and is up 59.1 per cent over the last five years.
Alquity Indian Subcontinent invests in smaller companies. It is higher risk but may draw higher rewards. It is up 24.2 per cent over five years.
Stewart Investors Asia Pacific Leaders Sustainability invests in large and medium-sized companies that have significant operations across the Asia Pacific region. Almost half the portfolio is now invested in Indian equities and the fund is up 41.8 per cent over five years. This fund may offer more diversification because it also invests in Japan, Australia, Taiwan, China and Singapore.
There is no guarantee that India will continue to outperform, but it is worth considering as part of a balanced pension or stocks and shares Isa portfolio.