India: Getting too big to ignore - Eastspring Investments

The Indian economy has recovered strongly from the COVID pandemic. The IMF forecasts that India’s economy will expand 6.1% this year — one of the fastest rates of any major economy — and 6.8% in 2024. With India making up more than 15% of the MSCI Emerging Market Index and the economy expected to drive one-fifth of global growth this decade, investors should capitalise on the opportunities that will arise from India’s demographic dividend, rising affluence and unique sector strengths.

Anand Gupta, Portfolio Manager at Eastspring Singapore, discusses the correlation between India and China A-share and H-share markets, tailwinds for India, as well as opportunities in India that investors can take note of.

Please find the full article here.

Key takeaways include:

  • While India is striving to realise its economic potential, its equity market is also making big strides. India accounts for more than 15% of the MSCI Emerging Market (EM) Index, up from 6.7% in 2009. It ranks second in terms of weight within the MSCI EM Index, next only to China. For investors, India is quickly becoming a market that is too large to ignore. 
  • The Sensex Index outperformed the China A-share and H-share market by 18.1% and 12.5% respectively in 2022, with some investors believing that this strong performance was due to foreign investors reducing their exposures in China last year, given its slowing economy and embattled property sector.
  • In reality, in 2022, India suffered the largest foreign investor outflows it has seen in the last 12 years. It was rising domestic inflows (which tend to be sticker) that helped sustain the equity market. We believe that as global investor risk sentiment improves towards the Emerging Markets (EMs), both India and China will benefit from foreign investor inflows. 
  • In our opinion, global investors need not choose between the China and India equity markets. These markets offer opportunities in different sectors and can have complementary roles in portfolios. We believe that the correlation between the China and India equity markets will remain low because besides offering different exposures, each economy is at a different stage of growth.
  • The recent banking sector volatility in the US and Europe could result in tighter lending standards and a further slowdown in the developed economies. India is less vulnerable to slowing global demand as exports currently make up less than 20% of GDP. Given higher technology wage inflation in the developed economies, India remains an attractive outsourcing destination.
  • The rising affluence of the India consumer presents a structural opportunity for investors. India’s per capita spend on Fast Moving Consumer Goods (FMCG) stands at USD46 – Indonesia’s and China’s spend is 2x and 3x higher respectively. The resilience of the market and its growing weight in the MSCI Emerging Markets Index reflect the appeal of India’s structural story.