Why India, why now?
India is very attractively placed in today’s low growth environment. “It is the only major key economy which is growing at approximately 6 - 7%, especially in the emerging markets universe” says Medha Samant, Investment Director of the Fidelity India Fund states. The growth in India is being driven by domestic forces such as attractive demographics, rising incomes and an elevated middle class.
Aiding this recovery is the ongoing reforms process that has been in place over the last two to three years ensuring that India in a very strong position from a macro perspective. And from a monetary policy perspective, interest rates have been on their way down, and this is likely to benefit companies in India when it comes to kick-starting the private capital expenditure cycle.
What sectors look attractive?
From a portfolio perspective, we really like companies in sectors such as consumer staples, consumer discretionary & financials due to them benefiting from the attractive demographics, rising incomes and growing middle class. We also hold some select utilities companies that are monopolistic in nature, ensuring a higher rate of return. Infrastructure names are also positioned well due to them being beneficiaries of government reforms going ahead.
A key high conviction stock in the portfolio
One of our key high conviction bets has been a company called HDFC Bank. It is India’s leading private sector bank and we have held it over the long-term in the Fidelity India Fund. It has got a very high quality management team that has been in place right since its inception. This, alongside its well capitalised balance sheet and best-in-class asset quality, makes it one of our biggest contributors to performance.
HDFC Bank is proactively investing in its Fintech platform which is an area where we are seeing disruption in financial services. It has been continuously taking market share from its public sector rivals and is a long term compounder that has done well for us in both up and down markets.
Can investors access income in India?
The Indian dividend yield at 1.5% is definitely not the highest in the Asia ex-Japan region, however when you lift the hood of India what this market provides investors is an opportunity to invest in a high growth story. Some Indian companies are high quality with above average high ROE relative to the rest of the region.
We also have total return names selectively in the portfolio. These total return companies are where we are seeking capital appreciation as well as some kind of dividend payout or yield. Examples of these companies are really in the utilities sector, where you do get high regulated rates of returns as well as a decent dividend payout.