Indian Equities have been one of investor’s favorite choices among Emerging markets for the last years. The experts in the industry say that India might be the next convergence story after China. India seems to be the great hope for investors around the globe. Their long-term economic prospects, and its favorable demographics, make believe investors of a long road of growth ahead.
We wanted to understand what opportunities are available to invest in the Indian equities market, and have chosen some of the best Indian equities funds as per Morningstar 5 years annualised data. Nomura Asset Management, Schroders and Goldman Sachs Asset Management have also send us the strategy and allocations of their funds.
Best Indian Equities Funds
Source: Morningstar data 08/02/2022
Nomura Funds Ireland plc – India Equity Fund Class
Vipul Mehta, Head of Investment – Asia Pacific ex Japan
The dices are heavily loaded in favour of investors switching money out of India into China – after all the outperformance of the former is staggering and on every market metric India looks to be perched on the edge of a cliff. But the question is, why can’t it be both and leaving china for another discussion let me address the India part.
The recovery from Covid has been astounding and activity as per Nomura’s proprietary business resumption index is 10% above pre covid normals. In essence covid has helped the economy reboot from a number of malaises that shackled the economy. With an extremely measured central bank policy, a constructive government stimulus but most importantly an energetic entrepreneurial spirit, corporate India is up and running.
The market rally is more broad based than seen in more than a decade and growth promises to be strong, but the clincher for India is it’s nasdaq moment – the ongoing listing of unicorns which are out to capture a young and aspiring India’s underpenetrated market. Ignore the short term trap of one year forward valuations and you may be looking at a five to ten year sustainable growth story with enormous stand-out investment opportunities almost agnostic of the top down global and domestic economic environment.
Schroder International Selection Fund Indian Opportunities
Nicholas Field Global Emerging Market Equity Strategist Emerging Market Equities, Schroders
India has been a favourite of emerging market investors for many years. Underlying the many short-term reasons why asset managers might want to own Indian assets is the idea that India is the next great convergence story after China. A relatively poor country with a growing and large workforce is just the thing to get the world economy growing again.
In a world starved of investment and development, India is the great hope. India has a huge population, is relatively stable, operates under the rule of law and is relatively poor. You can see why investors think (or hope) that there is a substantial convergence trade possible. The evidence, however, is that India is not on this path, and is not pursuing it actively. But even if it does not, or cannot pursue an export-led model, it can build out manufacturing capacity to satisfy its own demand. Providing reasonable housing and basic household goods to Indians would still require manufacturing capacity and have global implications.
To do this India needs to confront two main problems. First, a lack of investment, assumed route of a decade ago – intensive be closed off. The second issue that needs addressing is education and the quality of and workforce participation. India is not unique in having an imperfect economic structure for convergence. China, South Korea and Japan all had issues before they began their rise. Some of these issues seem intractable.
We have discussed how an informal economy and cash in hand workforce discourages capital investment and becomes self reinforcing. How did other countries avoid these sort of traps? Simplistically they did it by sidestepping market forces in some way. SOEs in China, the Keiretsu in Japan and Chaebols in Korea had access to cheap capital, as well as some preferential treatment from government. And as a result were able to invest to move up the value chain without fear of losing their business. India has a few large industrial conglomerates which can act somewhat like this, but not enough of them to change the whole economic landscape.
What does this mean for investors? To our mind then, India is not likely to see convergence style growth in the near future. But rapid, export-led, convergence is not the only way forward. India is still capable of strong growth rates and, in any case economic growth does not solely determine the success of an investment. India has a large varied economy represented in the stock market across most sectors. It will continue to provide investment opportunities depending on industry dynamics, economic cycles interest rates, and other of the “usual” factors.
Given this outlook and the country’s economic idiosyncrasies, the Schroder ISF Indian Opportunities fund offers a vehicle for accessing the Indian market through active management and stock selection of high potential Indian companies.
Goldman Sachs India Equity Portfolio
Hiren Dasani, Co-Head of Global EM Equity, Lead PM India Equity, Fundamental Equity, Goldman Sachs Asset Management
We believe that India has a long road of growth ahead as its medium and long-term economic prospects are boosted by its favourable demographics, diverse business universe, and stable, reform-minded government.
Ongoing government initiatives, as well as strong external demand conditions, herald a rebound in the private investment cycle, which could also have positive effects on domestic demand and credit growth.
Although equity valuations appear high relative to their long-term average, we believe they are quite reasonable due to factors such as tailwinds from structural reforms, cyclical recovery in earnings and CAPEX, as well as market resilience during the pandemic. We believe that India continues to offer strong alpha generation opportunities.
We see some key issues that we expect will develop in the medium term, including: consolidation of a domestic market as some companies have suffered a stress test on profitability due to higher credit costs/raw material prices, or new growth paths for the manufacturing sector due to fiscal stimuli. On the back of past policy measures, to an extent India has been able to increase it exports of value added products like engineering & capital goods, electronics, auto parts and specialty chemicals.
Other key themes include the advancement of digitization, the privatization of state-owned companies or the Infrastructure outlay. In this regard, the Indian government plans to spend 1.4 trillion dollars in the period 2019-25 for sustainable development and consequently provide a multiplier effect to the economy. Currently, investment is being made, where possible, in private partnerships, in the development of smart cities, industrial corridors, railways, highways, renewable energy projects, etc.
Although Covid remains a short-term risk to the economy, we believe that the Indian government is increasingly focused on rapid vaccination. Most sectors have returned to pre-pandemic levels and the recovery in corporate earnings has also remained intact, pointing to a better outlook. We expect public spending and the central bank’s accommodative monetary policy to continue to support growth recovery in the coming months. A significant amount of resources could be deployed in the medium term.