TREASURE TROVE
The economic riches of India can prove attractive to the canny investor
INDIA MARKS Saka, its new year, today and a time for celebration by the many canny savers who have invested in the world’s largest democracy.
Even in the late 18th century, the historian Edward Gibbon wrote in his autobiography of “the treasures of India”. Wealth managers are still finding opportunities in a land with very favourable demographics.
Home to 1.37bn people – twice the population of Europe – India has a young and growing population of whom 27 per cent are aged under 15 years. By 2050 this naturally entrepreneurial country will have added around 270m more citizens.
The country is still struggling with poverty and inequality but the political leadership of Narendra Modi since coming to power in 2014 has helped to improve infrastructure.
His government has provided more access to electricity and cooking gas and even helped millions to open a bank account, now up to 80 per cent by comparison with the 69 per cent global average.
Adrian Lowcock of adviser, Willis Owen, says the impact on the country in the last five years has been to double personal income and “take 44 people a minute out of extreme poverty”. This transformation will bring long-term results.
One area of concern is the unrest created by Modi’s Bharatiya Janata Party removing constitutional autonomy in Jammu and Kashmir, the country’s only Muslim-majority state.
If Modi wishes to be regarded as the man who modernised India, respect for cultural and religious diversity is paramount.
Some of the reforms have been challenging but should pay off in time. Modi introduced a unified goods and services tax, akin to VAT, across the country in place of varying rates in different regions which was open to corruption.
Taxes for domestic businesses have been cut from 34.9 to 25.2 per cent and support provided for troubled sectors like financial and property.
“This makes India more competitive against China and other Asian countries,” says Kelly Kirby, chartered financial planner at Chase de Vere.
Jason Hollands, of Tilney Investment Management, is a strong supporter of India. He says that “like many developing nations, India is not immune from the problems of corruption, administrative inefficiency and creaking infrastructure but is streamlining the insolvency process, digitalising the welfare system, tackling the black economy through demonetisation and embarking on a major infrastructure investment programme including new roads and railways.”
Although Modi is in power for another five years and clearly has a grasp of the work to be undertaken, savers should take a long-term perspective.
It could form the bedrock for retirement planning. For decades of growth – up 4.5 per cent this year – it is an ideal area for children. A personal pension can be started at any age, even for a baby. If £2,880 is invested annually, the Government will add £720, making £3,600.
The research director of Fundcalibre, Juliet Schooling Latter, changed her pension allocation late last year to entirely Indian equity funds.
She says: “It’s a high risk market and won’t be for every investor but I’ve got a good 15 years or so until I retire and, by investing monthly, the almost certain volatility of the Indian equity market will not upset me in the short term.”
Her fund choices are Goldman Sachs India Equity Portfolio, IIFL India Equity Opportunities (formerly known as Ashburton) and Stewart Investors Indian Subcontinent Sustainability.
On the negative side, the Indian stock market “has always looked expensive compared to other emerging markets and, in the short term, can be sensitive to swings in the oil price or could become a victim to events like coronavirus”, warns Lowcock.
Schooling Latter admits that last year was tough: “The economy has gone through a cyclical turn down and small and medium-sized companies suffered but it’s now set up for long-term sustainable growth.” She says India is at an earlier stage of development than China.
Kirby says considerable improvements to the regulatory framework are still required with corporate governance concerns on disclosure and transparency by some firms.
Some wealth managers prefer to access India as part of a wider Asian or emerging markets fund to reduce specific country risk. Adam Martell, at Charles Stanley in Leeds, takes this view, tipping JP Morgan Emerging Markets, an investment trust with one-fifth in India.
Its stocks include IndusInd Bank which is based in Pune, one of the new generation of privatised banks which opened in 1994 and aims to provide personal banking for the growing middle class.
A broad-based and diversified emerging markets Asian fund is Kirby’s tip, such as Fidelity Emerging Markets with 13 per cent in India. Hollands favours Stewart Investors Asia Pacific Leaders fund which has 35.6 per cent invested in India.
Aberdeen’s New India
Investment Trust is the choice of several including Dzmitry Lipski, head of Funds Research at interactive investor which now includes The Share Centre, and Martell if pushed into one key fund. The latter likes it over an open-ended fund as it can be bought at a discount to net asset value.
It is quite concentrated with around 50 per cent in just 10 stocks. Based in Singapore, the managers favour consumer staples and make only infrequent changes to the portfolio.
With its strong longterm performance, stable management team and commitment to sustainable development, Stewart Investors Indian Subcontinent Sustainability is Lipski’s other fund choice.
Fidelity India Focus is Lowcock’s country choice for its very flexible approach. Its manager, Amit Goel, uses local expertise to pick stocks at reasonable prices.
For a more diversified approach with 18 per cent in India, he tips MI Somerset Global Emerging Markets. Its manager is willing to pay a premium for healthy balance sheets, high returns, strong cash flows and sustainable margins.
Another approach would be to use a tracker which replicates a published index of stocks. Deutsche Bank offers two exchange traded funds mirroring the Nifty 50 (India’s blue chip companies) and the MSCI India Index which has 84 constituents.
For another dimension, consider iShares MSCI India Small Cap ETF. Whilst charges are lower with a tracker, check the currency used, where based and who is the custodian.
For a concentrated tracker, look at the Sensex index which has 30 holdings. It started in 1986 and is strong in banks (Axis, Icici, Kotak Mahindra) and cars (Bajaj, Hero).
India is on its way to becoming the fifth largest economy in the world.
According to the World Economic Forum, India is set to become the third largest consumer market by 2030 with domestic consumption forecast to reach US$6 trillion from $1.5 trillion today. Its potential should not be undervalued.