Emma Wall, web editor for Morningstar.co.uk., spoke to international fund managers about their views on India.
Joel Kim, Head of Fixed Income Asia Pacific, BlackRock, names India as the most resilient economy when compared to its Asian neighbours. It is a net importer of commodities, independent of China, and less reliant on U.S. growth than its smaller neighbours. He is not alone in singling out India as a bright spark within the Asian region.
Here are the opinions of three other fund managers who have expressed their views on Morningstar’s U.K. website.
Simon Pickard, Carmignac Emergents
Emerging markets are actually diverging markets and not all of them are moving in the same direction.
I think India is a very interesting story. Clearly, we all know what’s happened with the election in India, but I mean we always find that if you pick emerging markets purely on politics, you’re probably going to go wrong. What you need to do is have a combination of politics and the right economic momentum.
I think what’s so interesting about India today is not only that we have a government that finally seems to be doing things, and we’ve now had six months of the Modi government, I think, they’re doing the right sort of thing. But Modi has come in at a time when the Indian economic cycle, we think, has bottomed. India is a very cyclical market and we had five years of very, very low investments, very low credit growth in India, and I think that we’re at the bottom of the cycle. And so we are going to have, I think, for the next five years a story of improving politics plus the economic cycle being in our favour, so re-leveraging, bank credit going up, and that’s exactly what you want from emerging markets.
If you would have told me at the beginning of the year that Modi was going to get elected and that interest rates and inflation would come down, then you probably wanted at the beginning of the year to go out and buy, for example, infrastructure stocks; for example, property stocks. And if you’d have done that the beginning of the year in a stock like DLF, which is India’s biggest property company or Jaiprakash, which is the infrastructure company that built the Formula I racetrack famously, you’d have made money up into the election, but you’d have lost since the election, probably 60% of your money.
So, even in these stocks that you would think would be fantastic beneficiaries of everything that’s going on in India, you’ve lost a lot of money, whereas where you made money has tended to be the sort of the steadier cash flow companies - Tata Motors, Bharti, these kind of things.
So it’s yet again a lesson that you must pick good companies even in a place like India where I think a lot of things are going the right away.
Sandeep Kothari, Fidelity
Of course we are bullish on India over the long term. It has a young population, is English speaking and has a democratic political system. Indians get the concept of capital markets – their stock exchange is one of the oldest in Asia. There has already been tremendous wealth creation from simple business structures and the government has got the current account deficit under control. Debt is with corporates rather than with the state – these are all positive indicators.
There is much to do with infrastructure development in particular. There was a credit boom in 2010 which meant there was a surge of investment in the sector but corruption was created and many of the projects were never completed and the banking system has been stuck with these loans. The process to clean up the mess will take time.
We have come a long way in India. Fifteen years ago if you wanted a telephone landline you had to pay a bribe and wait three years. Democracy has tackled that with the corruption bill. Transparency is now a priority.
On a 5-year time horizon, there is no doubt that India is an exciting place to be as an investor. You do not need to look for particularly exotic companies either. There is plenty of low hanging fruit; just stick to roadbuilders, finance, healthcare and education.
Andrew Gillan, Henderson Global Investors
The reason that we like India is that it gives us good diversification in terms of Indian companies operating overseas and outside of the region but also a good exposure to the domestic consumption story within India.
Our largest position is in HDFC which is the leading private sector mortgage company in India. It's got a really impressive track record of earnings growth and stability in net interest margins and spreads despite volatility in interest rates and even kind of the political environment within India. So, broadly speaking, we have good exposure to financial services, the consumer sector, but we're more measured because valuations are quite expensive in the consumer sector. And then we like pharmaceutical companies. We also like IT services. We think these sectors can deliver good earnings growth despite sort of the environment within the region from a macro perspective in Asia.
India has maybe disappointed a little bit. There was this euphoria post Modi's election. And recently we had the Bihar state election which was a disappointment for the government. So, there has been disappointment, but I think as investors we're quite realistic in terms of the pace of change within India. And the domestic economy is still doing relatively well compared with other parts of Asia.
In 2014, India did very well and outperformed the region. In 2015, what we've seen is really the market take pause. India has done okay. Its currency has also held up relatively well because they've made good inroads in addressing the current account deficit which was a concern of investors a number of years ago. But at the same time, there has been a pause for breath.
Earnings growth has also disappointed a little bit. It's still been among the strongest in Asia, but it's been less strong than expected at the start of the year.
India is certainly more resilient against a weaker global backdrop because the domestic consumption story is very strong. But in order to achieve that we are going to have to see more meaningful progress in politics, infrastructure investment, more FDI, for example, which has been a criticism of India in the last decade or so.
