Investing in Indian equities

Sam Slator 02/11/21 in Strategy

India is the focus of our attention this week as it’s the start of Diwali, one of the most important religious holidays in the country.

The annual five-day event, also known as the festival of lights, includes a main celebration on the third day, which this year falls on Thursday 4th November.

This gives us the perfect excuse to see what opportunities India provides by chatting with leading fund managers that follow the country closely.

The Indian economy

India has a population of more than 1.2 billion* and had been enjoying substantial growth as it integrated itself into the global economy.

According to the World Bank, more than 90 million people were lifted out of extreme poverty between 2011 and 2015*. However, it points out that the Covid-19 pandemic caused India’s economy to contract 7.3% in the full-year 2021*, despite “well-crafted” fiscal and monetary policy support.

“Following the deadly second wave, growth in full-year 2022 is expected to be nearer to the lower bound of the range of 7.5% to 12.5%* – still putting India among the fastest growing economies in the world,” it noted.

The Indian stock market

The MSCI India Index, which measures the performance of the large and mid-cap segments of the Indian stock market, has returned 28.86% this year, according to figures to the end of September 2021**.

Returns over the past year to the same date, meanwhile, come in at 54.63%, while the three-year annualised returns are currently 18.41%**.

The 10 largest constituents of the index come from a variety of sectors, including energy, financials, consumer staples and communication services.

Reliance Industries, the multinational conglomerate, accounts for 10.1% of the index**, followed by Infosys, the information technology business, with an 8.0% weighting**. Housing Development Finance Corporation, a financial services business, is the next largest with a 6.6% weighting**, followed by ICICI bank with just over 5%**.

Reasons to invest

Jason Pidcock, manager of Jupiter Asian Income, told us there were plenty of reasons why he remains happy to invest in India. These are: Its functioning democratic political system; the vast and growing economy; and the fact it has room to play catch-up with other nations as GDP per capita remains low.

The fund currently has 12.4%*** invested in the country. “As with most emerging markets, there are many pockets of quite developed areas in India already and a number of cities attract multinational investment, as well as host home-grown companies which are thriving in the global marketplace,” he says.

Jason points out that India is more of a services-led economy than China, which was nicknamed the workshop of the world, and suggests this may mean it’s better placed for growth over the next couple of decades. “Politically, India is becoming increasingly aligned with the West and has good relations with the US and the UK,” he says.

Jason’s favoured areas currently include consumer staples and high-end office property. “The businesses we invest in have a good track record of growing their earnings, as well as their dividends,” he adds.

Meanwhile, the largest sector allocation in the Goldmach Sachs India Equity Portfolio, which is managed by Hiren Dasani, is 20.7% in financials***. Information technology is next with 17.6%***, followed by 12.3% in materials*** and 11.1%*** in the consumer discretionary sector.

The fund, which is aimed at investors wanting capital appreciation without any need for income, has just under 100 holdings. Its most significant stock name is Infosys, the multinational information technology company, which accounts for 7.3% of the fund’s assets under management***. It’s followed by ICICI Bank, a leading private sector bank, and Axis Bank, the banking and financial services company, which weigh in with 6% and 3.5% of the fund, respectively***.

The Stewart Investors Indian Subcontinent Sustainability fund, managed by Sashi Reddy and David Gait, aims to achieve capital growth over the long-term, defined as at least five years.

The largest holding in the fund is in Tube Investments of India Limited, a conglomerate that’s involved in areas such as engineering, bicycles and metal formed products***. According to the most recent strategy update, the fund’s managers have been increasing exposure to existing financial services companies as valuations have become a little more palatable.

“We also added to Bosch India, Mahindra & Mahindra, Blue Dart Express and CG Power as they continue to be attractively valued given their potential over the coming decade,” it said.
Conversely, it sold out of names such as ABB India, the global technology company that’s involved in areas such as electrification, process automation, motion, and robotics.
“ABB India is well-positioned to benefit from India’s industrial cycle and the underlying automation tailwinds – but valuations are now very stretched leaving no room for error,” it added.

*Source: The World Bank in India, 4 October 2021
**Source: MSCI.com, gross returns in Indian Rupees, figures to 30 September 2021
***Source: fund fact sheet, 30 September 2021

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