‘India has best investment climate in 22 years’

Five key changes will boost returns in the subcontinent, a respected fund manager tells James Connington

India has developed into the world’s seventh biggest economy, and a number of reforms make it the best time to invest in the region, says one top India investor. India is volatile, and strictly a long-term investment, but over the past five years for a sterling investor the average India fund has returned 105pc, compared with the 57pc return for the FTSE All Share index, the measure of the UK market, and 33pc for the MSCI Emerging Markets index. Over that period the MSCI India index is up 67pc.

Avinash Vazirani, manager of the £750m Jupiter India fund – a member of our Telegraph 25 list of top funds – spoke to Telegraph Money about the five key changes he believed analysts and markets had failed to account for.

He said: “It is the best investment climate I have seen in the 22 years I’ve been investing in India.” The election of Prime Minister Narendra Modi’s party with a landslide majority in the largest state in India earlier this month had secured political stability for the foreseeable future, said Mr Vazirani, who added it was a “unique situation”.

“There is seven years of political stability ahead. When you look around the world, you don’t have that anywhere else in my view,” he said. He explained that the market was up around 3.5pc in response, including the currency strengthening, but this does not fully account for the value of such stability. The roll-out of a social security system in India would boost consumer spending, said Mr Vazirani. The move follows the introduction of biometric ID cards, which now cover 99pc of all Indian adults.

Mr Vazirani said that as any political opposition had “melted away”, the rollout had happened faster than expected.

He said: “Recent numbers from the government show that around 450 million accounts have been linked to a biometric ID card.

“When you introduce a social security system on such a vast scale, consumer spending will increase over many years. By how much we don’t know, but analysts aren’t pricing any benefits into their models.”

At the moment, there is a complicated system of taxation applying to goods moved between different Indian states, placing significant cost, time and paperwork burdens on businesses.

“Nobody is putting numbers on the benefits, which we know will come,” he added. “The new system will also catch in the net those who used to avoid paying tax, reducing unfair competition from non-taxpaying businesses.” The rapid roll-out of high-speed internet to hundreds of millions of mobile users in India would lead to most of the country going “straight from using family-run shops to internet shopping”, said Mr Vazirani. Start-up mobile provider Jio has invested more than £16bn in a fibreoptic and 4G network, and Mr Vazirani believes the company will push down the pricing of all mobile and internet providers. Jio charges around £4 a month for 28GB of data and free calls.

“Vodafone just merged its Indian subsidiary with [local provider] Idea Cellular, creating one of the world’s largest telecoms companies. Together they will have more than 400 million subscribers. The next biggest in India has 260 million, In late 2016 Prime Minister Modi removed 500 and 1,000 rupee notes from circulation overnight.

The move was designed to tackle criminal and black-market activities by forcing those with high-value notes to put them into the banking system, or lose the money. A side effect has been a push towards more formal household saving in India.

Habits are changing, too. Previously “significant proportions” of savings were placed into gold, property or held as physical cash – now more goes to banks.

“It’s a $2 trillion economy with a 30pcplus savings rate, which equates to $600bn of savings per year. Even a 5pc or 10pc move from the informal to formal sector is huge,” said Mr Vazirani.

Mr Vazirani said: “Banks are sitting on more deposits than they’ve ever had, investment funds are taking in record amounts and life insurance sales were up 25pc in January year on year.”

While cash-dependent businesses will suffer in the short term, Mr Vazirani said the shift would ultimately benefit financial technology, life insurance and investment companies. Any negative short-term news is the time for investors to buy, he said: “If markets fall due to short-term numbers, investors should add for the long term.”