India's stock benchmarks, the Nifty 50 and Nifty 500, have ascended to new all-time highs today.
The country's equities have attracted strong interest from investors in the past few years, especially in 2023 as the country bypassed China as the world's most populous country, shining a light on the Indian economic growth story.
The Nifty 50 index of the 50 largest companies today rose 151 points or 0.7% to 21,668.60, while the wider Nifty 500 closed 174 points higher at 19,541.25.
Over the past month, 3.9% and 5.1%, respectively, and over the past 12 months 20.4% and 27.0%.
The annual gain compares to 22% for the MSCI World, 25% for the S&P 500 and 45% for the Nasdaq (before the 3.4% in the first days of 2024) and a little over 3% for the FTSE 100, as well as topping the teens to low-20s performances for the main European indices, and Japan's Nikkei 30%.
Over five years, the Nifty 500's 115% gain is pretty much equal to the more-trumpeted Nasdaq's 116% increase.
India's attractions and challenges for investors
The main recent attraction for investors is likely to be the changes pushed through by the far-right government of Narendra Modi in recent years, which fund managers who invest there say have improved it as a place to invest.
Historically the Indian economy was somewhat decoupled in performance from western markets, mainly due to a more domestic-driven growth model as opposed to reliance on the exports-led strategies of many other emerging economies.
However, India is not immune to global headwinds, as seen during events like the global financial crisis or the COVID-19 pandemic.
There are some challenges to investing directly in Indian stocks for overseas investors, with the market having some regulatory and bureaucratic hurdles.
Foreign investors need to navigate through a process of registering as a foreign portfolio investor (FPI), which includes compliance with stringent regulations and tax implications.
However, there are numerous investment trusts, exchange-traded funds and other mutual funds specialising in the country - most of which will provide access to major companies such as Reliance Industries, ICICI Bank (NYSE:IBN), Infosys (NASDAQ:INFY), Tata Consultancy and Bharti Airtel.
This has not escaped UK investors, with significant month-on-month inflows since last spring, according to Investment Association data, with the latest data from October showing double the amount of assets in UK retail funds focused on the Indian subcontinent than on China-focused funds.
However, some investors and analysts have flagged how expensive India stocks are, with price/earnings ratios above US blue chips.
Goldman Sachs (NYSE:GS) analysts said in a note last autumn that Indian stocks tend to rally significantly before national elections.
Investment trusts
There are four UK-based public limited companies that invest in Indian equities:
- JPMorgan Indian Investment Trust PLC - the largest with £821.8m of assets, discount 15.6%, 1yr record +11.7%, 5yr +36%)
- abrdn New India Investment Trust PLC - £445.4m of assets, discount 17.05%, 1yr record +16.7%, 5yr +42%)
- Ashoka India Equity Investment Trust PLC (LSE:AIE) (Ashoka India Equity Investment Trust PLC (LSE:AIE)) - £298.7m of assets, premium of 1.3%, 1yr record +26.5%, 5yr +163%)
- India Capital Growth Fund Ltd (LSE:IGC) (India Capital Growth Fund Ltd (LSE:IGC)) (£174.3m of assets, discount 3.8%, one-year record +12.7%, 5yr +99%)
Each offers a managed portfolio focused on specific themes within the Indian market.
Exchange-traded funds (ETFs)
ETFs that specifically target Indian stocks or indices provide a more liquid and diversified way of investing, generally directly tracking the performance of an index or basket of stocks.
India ETFs available for UK investors include:
- iShares MSCI India ETF
- Xtrackers MSCI India Swap UCITS ETF
- Franklin FTSE India ETF
- WisdomTree India Earnings Fund
- iShares MSCI India Small-Cap ETF
- First Trust India NIFTY 50 Equal Weight ETF
- Invesco India ETF
- VanEck India Growth Leaders ETF
Most of these ETFs track widely available indices, including the Nifty or MSCI India, and most include the largest companies such as Reliance, ICICI, Infosys (NASDAQ:INFY), Tata and Bharti, while the iShares Small Cap unsurprisingly targets smaller stocks.
The Franklin fund tracks the performance of the FTSE India 30/18 Capped Index, a market cap-weighted index that limits over-concentration in any single security, while the Invesco fund tracks the FTSE India Quality And Yield Select Index, which excludes the bottom 10% on yield and quality scores.
WidomTree with its fund tracks a weighted index that attempts to gauge the performance of profitable companies in India’s stock market, with each company weighted individually according to a valuation methodology.
Funds
Several global and UK-based fund houses offer India-focused funds. These funds are managed by professionals who allocate assets across various Indian equities, balancing the risk and return.
Funds include:
- First State Indian Subcontinent - US$395.43m assets
- Franklin India - US$1.77bn assets
- Ashoka WhiteOak India Opportunities ICAV - US$2bn
- Mirae Asset India Mid Cap Equity Fund - US$214.3m assets
- Stewart Investors Indian Subcontinent Sustainability Fund £657.7m assets
- Liontrust India - US$65m assets
Some global funds also have a large focus on the subcontinent, including Aubrey Capital's Global Emerging Markets fund, which last year announced it was significantly 'overweight' India.