Funds to play the next era of Narendra Modi in India
As the dust settles on the largest, and possibly most drawn-out democratic election process anywhere, Narendra Modi has retained power in India. This is likely to settle the nerves of UK-based investors that already have an appetite for investing in India.
We’ll now look at some of the ways you can access the country via open-ended funds.
Jupiter India Fund (B4TZHH9) is one of the most popular products among UK investors seeking exposure to the region, thanks to manager Avinash Vazirani’s long-term track record of great returns.
Fidelity India Focus (B51RZC1), BlackRock GF India (B6TJT02) and HSBC GIF Indian Equity (B8DHHC4) are the three best performers over the past three years among 18 open-ended options featured in the accompanying table, while there are also various investment trusts and exchange-traded funds (ETFs) providing access to the Asian market.
WHY IS THE ELECTION RESULT IMPORTANT?
Modi is widely seen as the chief architect of an Indian economic boom since coming to power in 2014, thanks to sweeping reforms. Changes to the taxation system, hefty infrastructure investment, putting the brakes on inflation and curbs on fraud have all paid handsome dividends for the nation, and investors.
During the past five years the Sensex, India’s benchmark stock market index, has soared more than 60%. Understandably the six-week election process had led to wavering investor sentiment and more volatile share performances, yet investment experts remained calm.
As JPMorgan investment manager Ayaz Ebrahim told Shares, reforms already in place are ‘unlikely to be reversed’ even if Narendra Modi was ousted from office.
Make no mistake the sub-continent represents a structural growth story to match China that oozes socio-demographic and economic-backed investment opportunities.
The government’s reform agenda is designed to make doing business in the country easier and its infrastructure improvement policy will also be contributing factors by attracting more foreign investment into the country.
India’s enviable growth projections will be driven by low energy prices, corporate deleveraging programmes and demographics, where half the population is aged 25 or under. That’s a favourable growth environment compared to the rapidly ageing population in Japan and most of Europe.
‘Of all the reasons to invest in India, the country’s demographics are arguably the most compelling,’ say experts at Aberdeen Asset Management.
EMERGING MIDDLE CLASS
That includes the significant rise of India’s middle class, estimated at 100m-plus and growing fast. Powered by the third largest education system, according to the World Bank, that is known the world over for producing a stream of advanced mathematicians, top scientists and thousands of doctors and IT professionals, India is also expected to see significant advances as a consumer nation over the next decade.
‘Total consumer spending in India is expected to hit $3.1trn by 2030, from $1.4trn in 2017,’ says Kristy Fong, an investment manager at Aberdeen New India Investment Trust (ANII).
This is backed by rapid urbanisation and growth in personal wealth. According to one report, assets owned by Indian individuals (property, business interests, investments, cash) grew 96% between 2008 and 2018, and are forecast to jump 180% again during the decade to 2028.
These drivers have led some market watchers to predict that India will replace Japan as the world’s third largest economy by 2025, behind the US and China. India ranked seventh in the world in 2018, according to International Monetary Fund (IMF) data, and the nation is set to overtake both France and the UK this year to rank fifth.
Recent projections by Standard Chartered rank India as one of the fastest growing emerging markets over the next decade or so with GDP set to expand 387% by 2030, adjusted for purchasing power parity (PPP). That implies its equivalent $9.5trn economy
in 2017 IS emerging as the world’s second largest on a GDP PPP-adjusted basis worth $46.3trn in 11 years’ time.
China is projected to be number one in 2030 at $64.2trn, the US falling to third ($31trn), while the UK wouldn’t even feature in the top 10.
India is by no means a one-way ticket to portfolio profit and the same or similar risks apply to India as they would anywhere else.
There’s always the chance that export growth slows, producer prices decline or softer domestic spending linked to limited rural wage growth put the brakes on stock market returns. Oil prices are another risk since India is a heavy importer.
That said, Nitin Bajaj, who runs the Fidelity Asian Values (FAS) investment trust believes India offers an enticing opportunity, where US-China trade bickering has limited impact and internal investment has stayed firm.
Arguably the most sensible way for UK investors to gain a slice of the Indian growth story is through some form of collective investment. Once a notoriously difficult market for outside investors this has changed considerably over recent years, with efforts to liberalise the rules on foreign investors.