As India opens for business, what are the investment opportunities?, November 2020

Last week, more than a billion people around the world began the annual celebration of Diwali – albeit virtually in some cases. Ending today, India’s biggest festival is all about good triumphing over evil and welcoming new beginnings – which seems very apt for 2020.
India’s stock market has lagged other emerging markets over the past few years, and this has led to investors being very pessimistic about it. But Chelsea’s Juliet Schooling Latter is still very positive on the country.

She said: “I think of it as a buy and hold investment for the long term. Why? Because the fundamentals are good and much needed reform is now taking place. But it will be one step forward and two steps back for a while as these changes are made. Any pull backs I see as a buying opportunity - but it’s not an asset class for the faint hearted or those who want a short-term investment.”

We asked three Elite Rated managers for their thoughts on the near-term prospects for the market and where they are finding opportunities.

Hiren Disani, GS India Equity Portfolio

“The Indian economy is quickly recovering from the impact of COVID – recent corporate commentary suggests that demand for most categories has recovered close to 90% of the pre-pandemic levels. Though the number of COVID cases in India continues to rise, the recovery rate remains healthy, and fatality rate is pretty low vs. the world average. Economic revival continues to be the government’s top priority with most of the places now open for business.

“Over the last few years, increased competitive intensity within the Indian telecom industry has resulted in the lowest internet tariffs globally. This, along with the COVID impact, has propelled the rise of consumption through the internet in India, and accelerated the adoption of e-commerce, mobile and internet payments, online education, tele-medicine, etc. creating a fertile ground for a lot of start-ups and online businesses.

“With a large young population and entrepreneurial capital allocation, numerous businesses are cropping up to cater to their needs. The number of start-ups and indeed, unicorns - private companies with a valuation over $1 billion - has risen in India. Following on the heels of Chinese Tech companies over the last decade, we believe India’s billion-strong consumer market holds a similar promise. These companies could also potentially offer attractive investment opportunities once listed.”

William Lam, Invesco Asian

“Within Asia, India has been the worst hit country health-wise by Covid-19. The initial lockdown harmed its large informal economy and did little to stop the spread of the virus. The Indian government realised that a swift U-turn was required and abandoned its effort to eradicate the virus and instead focussed its attention on supporting the economy. This seems to be working and, in our view, puts India in an interesting position as it is now open for business – with a strong domestic economy – unlike other countries with a Covid ‘clean sheet’ to protect. The market appears to be taking notice given India’s outperformance in the third quarter of the year.

“We have been adding to our Indian exposure in our portfolios (India is one of our largest country overweight’s) and we remain optimistic that the business prospects for our Indian holdings have scope to improve further for a number of reasons.

“Firstly, the economy is close to pre-Covid levels of activity according to recovery trackers we follow - which chimes with anecdotal evidence from company management we have spoken to. Also, infection rates are past the worst according to government surveys, and death rates remain relatively low, partly thanks to India’s young population.

“The country also benefits from structural growth drivers and the reform momentum of the past few years, although painful in the short term, should begin to bear fruit within our investment horizon. More recently, the government has introduced the long awaited new labour code which is expected to consolidate 29 different codes into four – this should help incentivise business creation and greater investment. Complex labour laws have been a disincentive for small firms to invest and scale up their business in the past.”

Sharat Shroff, Matthews Pacific Tiger

“In our view, the pandemic has provided a jolt that is likely to reset global supply chains across different industries, which may benefit Indian companies. We are already witnessing positive pick up in export demand for many sectors, including ancillary automotive, pharmaceuticals, chemicals, tiles, electronics, white goods outsourcing and textiles.

“In terms of our portfolio, we have added exposure to Indian businesses where we see opportunity from a recovery in consumption-related activities as the threat from COVID recedes. In particular, we believe the housing sector may start to recover, and create opportunities for businesses that provide household appliances and other electrical products to consumers. In addition, discretionary consumption is showing some signs of recovery, and we are looking to add exposure in this sector as well.

“On the other hand, India's banking and financial system continues to wrestle with the economic impacts of the coronavirus. In addition, continued changes by the central bank regarding rules for recognising and restructuring bad loans has weighed on the sector. Our approach continues to be maintaining exposure to banks with strong balance sheets in order to capture a potential turnaround.

“Finally, we are encouraged by the progress of economic reforms. India's parliament has recently passed some measures that look to simplify and consolidate the plethora of the country's labour laws, reducing employers' burden of recruiting employees and easing regulatory compliance. We believe these changes will help improve ‘ease of doing business' in India over the long term.”


Published on 16/11/2020