India has been a bright spot for emerging market investors this year, reports Karen Kwok, a reporter for Morningstar.co.uk.
Thanks to its domestically focused economy it is less sensitive to global growth concerns, plus it has undergone positive structural reforms led by Prime Minister Narendra Modi.
How will a Trump presidency impact India?
Regarding the U.S. presidential election, Avinash Vazirani, fund manager of Bronze Rated Jupiter India Fund, admits that there have been some short-term outflows from emerging markets. But data from Morningstar Direct showed that India Equity funds have recorded £37 million inflows YTD. (In October and November 2016, Jupiter India Fund has been among the top 10 most popular hit list on Morningstar.co.uk.)
The U.S. election has produced short-term dislocations in the India equity market, said Jonathan Schiessl, CIO at Ashburton Investments International. India’s companies which are more export focused have been underperforming for some time under Trump fears, but the giant Indian techology exporters are particularly caught in the cross hairs, he added.
Rob Marshall-Lee from Newton Investment Management was more sanguine saying that U.S. policy has a limited effect on India’s fortunes. “India is a more internally-driven economy than its peers in emerging markets; exports only represent 12% of its GDP and exports to the U.S. represent less than 5% of its GDP,” he said.
Recently, Devan Kaloo, head of global emerging markets for Aberdeen, spoke to Emma Wall, senior editor at Morningstar.co.uk. about his views on India. “When we look at the world going forward there are lots of risks - global growth, political scenarios, global monetary policy. India is one of the least impacted countries since it is a very much a domestic story. Hence one of the safer stories within emerging markets and I suspect globally as well.”
India pushed through far-reaching structural reforms this year, with Prime Minister Modi working with opposition politicians to introduce a new bankruptcy law and an upcoming Goods and Services Tax, or GST, implementation. Aimed at replacing a plethora of indirect taxes into a single tax, this has also has a huge implication on India’s economy and will radically improve the efficiency of all levels of business in India, said Vazirani.
In November, Modi announced that higher-denomination currency notes of 500-rupee and 1,000-rupee, would no longer be legal tender. This is causing problems given India is a predominantly cash economy, but has paved the way for anti-corruption reform that would ultimately be positive for the economy and the stock market in the long term.
Vazirani adds that the main beneficiaries of this de-monetisation will be public sector banks. “They are currently taking in a lot of money, and they should also profit from lower yields as they hold lots of bonds on their books,” he said.
India remains a long-term growth story
India’s economy grew by 7.9% in the first quarter and 7.1% in the second quarter of this year. In 2015, the economy grew by 7.2%, a pace that exceeded even that of China, making it the fastest growing economy in the world.
India has managed to achieve high levels of growth on the back of robust private consumption instead of government spending and rising debt levels, said Joep Huntjens, lead portfolio manager of Asian debt hard currency and emerging market corporate debt at NN Investment Partners.
While the business-friendly government by Modi is speeding up the pace of India’s development, the demographic picture makes India a unique investment story, according to Vazirani. “India has a population of 1.3 billion, which accounts for nearly a fifth of the people on earth. As well as being huge, it is also remarkably young. While developed nations struggle with ageing citizens, the majority of Indians are under 35 and the median age is 27. And while its society and economy are developing fast, India is still a long way behind the West on its development path,” said Vazirani.
Kaloo believes that India represents one of the best long-term stories for emerging markets and some of the best run companies in emerging markets are to be found in this country. Having been the first to move into a slowdown back in 2009-2010, it's the first to recover. Underpinning it is falling interest rates, falling inflation, pick up in government expenditure and indeed potentially a pickup in consumption as indeed private sector infrastructure.
“If we are looking next 2 to 3 maybe even 5 years, I think the growth story is there for some time to come,” says Kaloo.
