India’s star is on the rise and while China has been a long-held investment darling for exposure to Asian markets, it may be time for investors to take a fresh look.
The COVID-19 setback
As with many countries globally, India was hard-hit by the COVID-19 pandemic from both a health and economic perspective.
While recovery may appear slow, there are promising signs for India’s future. Its underlying drivers for growth are still present and there are signs of economic recovery as seen in indicators such as industrial output and energy consumption.
The Indian government has returned its efforts to the future growth of the nation, with key emphasis on its existing plans for infrastructure.
Key growth drivers: the next China?
India’s future is dominated by three key growth drivers. Investors might notice the drive for infrastructure and consumption bear similarities to China’s growth drivers in the past.
1. Infrastructure demand
The Indian government has committed to US$1.4 trillion of infrastructure investment by 2025. This has short-term benefits such as employment and longer-term benefits in the form of useful infrastructure to improve access and lifestyle for the population.
It also builds out appeal to international investors who see viable infrastructure to support production or trade activity. There is also a strong focus on climate and renewables, with the Ministry of Petroleum & Natural Gas announcing in September 2020 that it aims to operate 50% of fuel stations using solar power within five years.
India has also partnered with Japan via the India-Japan Coordination Forum for Development of Northeast for projects in India’s Northeast states. One example of a beneficiary of this is listed Indian company Larsen & Toubro, which has been awarded a range of government infrastructure contracts.
2. Reform and fiscal policy
India has historically been complicated for business operations, but government reforms have assisted in opening the country to internal and foreign business investment. Some examples of this include tax reform, streamlined business regulations and simplified labour codes.
While foreign companies stand to benefit from moving into the Indian market as business conditions ease, local companies are also capitalising on greater cross-border activity. One example is Infosys, India’s second-largest provider of consulting and IT services across the globe with a staff headcount of more than 240,000 in nearly 50 countries. Infosys’ proprietary software Finacle is considered an industry-leading program and used globally.
3. Consumption
India is expected to benefit from a growing middle-class across Asia and the accompanying economic rise in consumption, with the percentage of households in poverty forecast to drop from 15% to 5% by 2030.
This has flow-on benefits to manufacturers of higher quality consumer staples along with industries like travel, education, healthcare, medical needs, luxury goods and technology. Domestic based companies have cultural and physical base advantages in reaching this audience.
These include Hindustan Unilever, the largest consumer staples company in India; Reliance Industries, India’s largest listed company by market capitalisation which spans oil and gas, telecommunications and retail; and Maruti Suzuki, the largest passenger car company in India with 50% domestic market share.
How can India fit within an investment portfolio?
Investors can consider investing in India from a few perspectives.
- A core investment offering regional diversification.
- A thematic investment as exposure to the broader trend for the growth in the middle-class in Asia.
- A growth allocation given the longer-term prospects and activity within India.
How to invest in India
It can be difficult for investors to directly access the Indian market for listed shares. From this perspective, investors could consider other options such as:
- Direct investment in companies with business operations in India listed in Australia or internationally.
- Actively or passively managed funds that focus on Asia, themes relevant to Asia or India or specifically focus on India.
One example is our ETF, the ETFS-NAM India Nifty 50 ETF (ASX: NDIA), which the only fund in Australia offering exposure to the NSE Nifty50 Index which includes the 50 largest and most liquid companies listed on the National Stock Exchange of India.
The next China… or something else?
India is a vastly different country to China but that doesn’t mean its growth potential can be ignored.
In recognition of this, many nations, including Australia, are seeking to forge closer trade partnerships.
Like any emerging economy on the build, there will be challenges on the way but for many investors, it will be worth closer investigation.
This article was written by Kanish Chugh from ETF Securities.
