I recently learnt that the first day of Diwali, the Hindu festival of lights, is dedicated to celebrating prosperity. This is an official holiday in India, where I think they have good cause for celebration. Despite the impact of de-monetisation and the introduction of the Goods and Services Tax (GST), which have both had a short-term negative impact on GDP, India remains one of the fastest-growing major economies.
India is home to 23% of the world's population, with the median age being 27. So whilst the UK, along with most developed nations, is having to cope with an ageing population, India does not need to worry about a declining workforce struggling to pay for the elderly. Although India has such a large proportion of the world's population, it only comprises 4% of global GDP. This shows the potential that India has for growth. For instance, the number of vehicles owned per 1,000 people is a mere 32 in India, compared with 519 in the UK. Worries about increased pollution aside, you can see the capacity for growth and this is reflected in so many other areas from healthcare spend to banking penetration.
The savings rate is also increasing with more Indians getting involved in the equity market and purchasing mutual funds. India also benefits from an entrepreneurial culture that sees it home to over 5,800 listed companies – the UK boasts a mere 1,858. There are many family-controlled companies, which benefit from taking a longer-term view when it comes to investment, compared with the increasingly short-term view taken by some CEOs who simply wish to maximise shareholder returns before they exit.
All these positive drivers are tempered by Indian bureaucracy. However, prime minister Narendra Modi has an ambitious reform agenda. GST is part of this, simplifying the tax regime with one single VAT system across all 29 states. It should improve transparency, the ease of doing business and moving goods throughout the country. Over the long-term it should raise government revenues, which are looking a bit less healthy at the moment. Both demonetisation and the introduction of the GST, whilst initially having a negative impact, are slowly dragging more people into the formal economy and should pay off over time.
The Indian market looks reasonably expensive at the moment, but with the long-term drivers I think it's an exciting area of investment for the next 10+ years.
Goldman Sachs India Equity Portfolio
This is an all-weather India fund with a well-resourced and experienced team, based on the ground in India and Singapore. It has a solid investment process and we particularly like the many company meetings the team undertake. Manager, Hiren Dasani has a very good and consistent track record.
Avinash Vazirani has considerable experience investing in Indian equities and describes himself as a bottom-up, pragmatic stockpicker. He seeks companies with sound business models, good management and strong corporate governance, which can perform regardless of external pressures. This is a multi-cap diversified portfolio.
Or for those who wish to hold India as part of a more diversified Asian portfolio:
Stewart Investors Asia Pacific Leaders
This fund currently has an overweight to India, with 29.5% invested there. David Gait manages this fund and Stewart Investors has a strong team style and an excellent boutique culture. The fund's well-defined process has consistently been able to beat the market over a very long period.
Matthews Asia Pacific Tiger
They currently hold 19.6% in India. This is a core Asian equity fund run by a well-structured and well-resourced specialist team. We particularly like the fund's willingness to differ from the benchmark and its aim to invest in long-term Asian winners, with a focus on corporate governance. The team have expert local knowledge and undertake numerous company meetings.
Written by Juliet Schooling Latter, research director.
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Juliet's views are her own and do not constitute financial advice.