India is taking over from China as the most populous country in the world in the next few months, the UN Population Fund’s World Population Dashboard confirmed today, with the opening of Apple’s first store in the country this week a sign of the changing economic times.
As well as overtaking its neighbours over the Himalayas, with a much younger population, the subcontinent has also improved as a place to invest, say fund managers who invest there, especially after changes pushed through by the far-right government of Narendra Modi in recent years.
Currently there are four London-listed investment trusts investing in India, listed by the Association of Investment Companies (AIC) under the newly renamed India/Indian Subcontinent and sector.
India focused investment companies
- abrdn New India Investment Trust PLC (discount 19.5% one-year record -8.8%)
- Ashoka India Equity Investment Trust PLC (LSE:AIE) (discount 1.3% one-year record -7.4%)
- India Capital Growth Fund Ltd (LSE:IGC) (discount 6.5% one-year record +12.7%)
- JPMorgan Indian Investment Trust PLC (discount 19.4% one-year record -0.3%)
Latest data on the AIC website shows all four are currently trading at a discount to net asset value, with the Ashoka trust the smallest, having outperformed its three rivals on a one-year basis, but its peers possessing the five-year and 10-year records it does not.
On a 10-year basis, the ICG trust, which mainly backs mid- and small-cap companies with a few large-cap stocks in the portfolio, has the best record, up 240%, followed by abrdn New India at 126% and the JPMorgan at 104%.
(Last month, AssetCo PLC (AIM:ASTO), the asset manager chaired by former Aberdeen boss Martin Gilbert, had agreed to acquire ICG manager Ocean Dial.)
Indian premier league performance
India last year stood out in terms of relative performance against global equities which had their worst year since 2008.
“It was a great year for India especially against other emerging markets,” said Gaurav Narain, the fund manager of India Capital Growth at Ocean Dial Asset Management said recently.
“India’s traditional bottlenecks such as poor infrastructure; the long lead time in getting regulatory approvals; the difficulty in purchasing land; and the high costs and availability of capital are no longer topics of conversation.
“In fact, states are competing with each other to attract investments.”
India is now competitive with other emerging markets on costs too, Narain said, with labour costs one-third that of China and tax rates amongst the lowest in Asia.
Half of India’s population are below the age of 30, making for a growing middle class and strong workforce over several decades, pointed out the abrdn New India's Kristy Fong and James Thom.
“This also places the country well towards becoming the world’s fastest-growing major economy in the coming years,” the pair said.
“Policy tailwinds matter, too, they add, with prime minister Narendra Modi, since he came to power in 2014, having made “great strides” in economic reforms through a blend of legislative and policy changes.
The government is looking to attract companies such as Apple, which will this week cut the red ribbon on first India retail stores in Mumbai and New Delhi, with specific incentives through Production Linked Incentive (PLI) schemes that look to offset other disadvantages.
“There is a recognition that India needs to be a manufacturing hub as it needs to employ its growing young population,” adds Narain.
State owned, low-cost digital infrastructure has helped India “jump ahead several years”, he says, improving the ease of doing business, adding that the private sector capex cycle and real estate markets also appear to be gaining momentum.
“There is no stress in the banking system. Non-performing loans are at near record lows, banks are well capitalised and are ready to invest. The same goes for corporate India which has low leverage.”
Abrdn's Fong and Thom also say that, given their bottom-up stock-picking style, the country is attractive first and foremost because of the quality of its companies.
For instance, they are particularly fond of the banking sector, in particular private sector banks, with the financials sector the biggest overweight in abrdn's Indian portfolios currently.
“India’s banks are generally well-capitalised and the best of them generate very attractive returns. The sector continues to have a huge growth runway given how low credit penetration and demand for basic financial services and products remains in India today. Meanwhile, digitalisation is helping these banks tap into the underserved markets in India’s great rural interior."
The pair are also positive about consumer staples, given the spending power of the nation's 1.4nn consumers, investing in what they say are catering to the expanding middle class.
“While India has always been a large market with significant growth potential, it has sometimes frustrated investors by never quite living up to that potential.
“The good thing is that things genuinely look to be changing.”