Emerging markets have played second fiddle to the tech-heavy US market in the last decade, but things are rapidly changing.
Recent estimates from the International Monetary Fund (IMF) forecasts Asia and emerging markets to grow by 4.6% in 2023, compared to global growth of 2.8%1.
India is gripping the attention of investors for a multitude of reasons
Morgan Stanley estimates that India may well be the world’s third largest economy within five years. Its GDP is expected to double over the 10 next years from US$3.5trn to US$8.5trn as it compounds at an annual growth rate of about 6.5%.
India’s stock market is impressive too. Goldman Sachs’ analysis of 10 major markets across emerging and developed markets found that more than half of the National Stock Exchange of India contains 10-baggers, stocks that have generated at least 10 times total returns within a rolling 5-year period over the past two decades2.
India also has a growing middle class. Some estimate that there about 432 million middle-class Indians - nearly one in every three people3. This generally increases a country’s purchasing power and drives consumer staples profits.
India’s growth comes at a cost
However, investing in the Indian stock market is significantly more expensive compared to neighbouring Asian countries.
Data from Goldman Sachs shows that on average India is currently trading at a 61% premium to the average for Asian stock markets.
India has always been more expensive than other Asian markets, but the current premium is much larger than historically.
The price-to-earnings ratio for India is 21 compared to other countries in the Asia-Pacific region such as Japan at 15 and China at 10.
This may well be due to interest from domestic investors who have flocked to India due to its growth success story. Inevitably this has pushed prices up and some investors may well look to neighbouring Asian countries for discounts.
How do I get exposure to India?
We have many funds with exposure to Indian stocks including:
As its name suggests, this Fund’s core focus is on India, holding 40 to 60 Indian companies.
Its holdings include the banks ICICI Bank, Housing Development Finance Corporation (HDFC) Bank and Axis Bank, as well as technology company Infosys, energy company, Reliance Industries, and materials company Ultratech Cement.
Fidelity Global Emerging Markets Fund
This concentrated Fund invests in 30 to 50 companies in emerging markets, favouring companies that have a track record of robust corporate governance.
Over 19% of its country exposure is in India and includes holdings in the banks HDFC, ICICI Bank, and Axis Bank, consumer discretionary company Eicher Motors, information technology company HCL Technologies, and industrials company Havells India.
This Fund provides access to a concentrated high conviction portfolio of typically between 20 to 35 companies across Asia.
Over 10% of its country exposure is in India and its holdings include the bank HDFC, and healthcare company, Fortis Healthcare.
All holdings listed above are accurate as at 14 June 2023
Sources:
1 International Monetary Fund, April 2023
2 Mint, 5 June 2023
3 Financial Times, 17 May 2023
