Could India deliver you red hot returns?
For years, it’s been a risky bet, but...
AS ONE of the countries hit hardest by the coronavirus pandemic, India might not seem a particularly timely bet for investors. Yet, last month, India-focused funds topped the list of best-performing funds in Britain — according to figures from Shore Financial Planning.
It comes as one of the country’s largest tech initial public offerings (IPOs) turbocharges interest in the South Asian market and its rapidly-growing internet industry.
The BSE Sensex, the Indian stock market index, is up by 21pc since January — more than double the FTSE, and on a par with the U.S. S&P 500. The International Monetary Fund predicts India as the fastest-growing large economy over the next two years.
This has been good news for India funds: with some larger ones up by 20pc this year. Some niche funds have topped 30 pc.
This isn’t the first time India has been touted as a best buy. In 2017, its rapid economic rise saw India funds become some of the most popular picks for retail investors. That was before the country’s economy fell into a multi-year slump, with falling domestic consumption and a weak banking system lowering share prices. Investors who bought Jupiter’s India fund in January 2018 would have seen their capital fall by 50pc within six months.
The fund has been able to shake off much of those losses, but its price is still slightly down on its previous peak — so investors are still waiting for a positive return.
‘It’s important to remember that, like many emerging markets, sentiment towards India can blow hot and cold,’ says Rob Burgeman, an investment manager with Brewin Dolphin.
‘India suffered a great deal of disruption during the pandemic, with its MSCI index (a standard measure of a country’s stock market) falling by 40 pc.
‘Since then, the index has soared, almost doubling in value — despite the pandemic.’
He suggests the country might have benefited from investors spooked by an increasingly difficult Chinese market, and looking for returns elsewhere.
But David Cornell, manager of the India Capital Growth Fund, suggests investors have plenty of reasons to be optimistic about India itself.
‘India’s economy held up well during its second wave of Covid, and is recovering quickly as local lockdowns ease up,’ he says. ‘Air travel, electricity consumption, rail freight and tax revenues are all showing encouraging signals.’
He points to the recent IPO of Zomato — an online food delivery firm he describes as ‘India’s Deliveroo’ — as an important moment. The firm is one of several Indian ‘unicorns’— fast-growing tech-driven businesses valued at more than $1 billion. With a valuation of $12 billion, it was the first of the firms to join the Mumbai stock exchange: opening it up to foreign investors. India is one of the world’s fastestgrowing internet markets, with more than 400 million smartphone users and a thriving e-commerce sector. Mr Cornell says Zomato’s IPO has shown foreign investors that India can follow China: whose unicorns (including Tencent and Alibaba) have delighted them in recent years. ‘Though we think India is still six or seven years behind China, we expect it to catch up faster,’ he says. But he does give reasons for investors to be cautious.
‘India’s stock market has been doing well but stocks are priced high compared to earnings — meaning that profits need to keep growing,’ he says.
Despite a successful vaccine rollout, the country is still vulnerable to a third wave of Covid.
Investors have several options when it comes to India-focused funds and investment trusts. Mr Burgeman points to retail options including JP Morgan India and Aberdeen New India.
Both trusts back some of the largest listed firms in India, including £72billion IT company Infosys and Tata Consultancy.
Other holdings include Unilever’s Indian subsidiary (Hindustan Unilever) and — in the case of JP Morgan — multiindustry conglomerate Reliance.
Their differing strategies mean the trusts’ performances have varied: with £10,000 invested in Aberdeen New India worth £16,700, compared to £12,600 with JP Morgan.
Mr Burgeman also points to iShares MSCI India ETF — which tracks the Mumbai stock market — as a quick and easy way for investors to back India.
Cautious investors may prefer to gain exposure to India with a more regionally-balanced fund.
Baillie Gifford’s Pacific Fund, for example, invests in the Indian, Chinese, Korean and Taiwanese markets (among others).
Thanks to the super-performance of a large Taiwanese holding, it has turned £10,000 into £28,100 in five years. Whether or not that firm keeps soaring, the fund still offers a chance to benefit from India’s growth, while limiting risks from another slump.