India has overtaken China as the fastest growing global economy – and according to Paul Sheard, chief economist at S&P Global India could grow up to 8% annually for the next 30 years.
Speaking at the sixth annual Financial Leaders’ Forum in Saudi Arabia last week, Sheard was reported to back India’s long term growth potential, thanks in the most part to its favourable demographics.
Being one of the world’s largest importers of oil, India has a net beneficiary of a falling oil price over the past two years, boosting public finances and bringing down living costs in the country.
While the IMF forecasts India's GDP to grow at 7.5% over the next two years, New Delhi's Central Statistics Office expects the country's GDP to climb to 7.6% in 2016, which is an increase of 0.4% than what it achieved in 2014.
Unlike most of its emerging market peers such as Brazil and Russia that are heavily relying on commodity-related exports, India economy is fundamentally driven by emerging middle class consumers in the country.
Political stability is also one of the contributors, thanks to Prime Minister Narendra Modi’s efforts to boost foreign investment and infrastructure. In Mumbai, at the Make in India Week exposition, attended by more than 10,000 government and business delegations from 72 countries, $220 billion of investment was committed, creating jobs and boosting manufacturing, according to Kunal Desai, manager of the Neptune India Fund.
“Whilst it is debatable how much investment will materialise, we believe it goes some way to show the intent of policymakers – other emerging markets are not approaching foreign companies with this scale and coordination,” says Desai.
Desai believes that the most interesting investments in the Indian market exist among mid-cap stocks, where he believes companies to “be far more nimble than their baggage-burdened large-cap peers”.
James Syme, manager of the Bronze Rated JOHCM Global Emerging Markets Opportunities Fund, agrees, saying India as one of his favourite economies with strong domestic demand.
Which Emerging Market Funds Offer the Greatest India Exposure?
Stewart Investors Global Emerging Markets has 20.6% of exposures to India equities, and the Silver Rated fund has generated 8.1% year to date. The fund has a 3.7% five years annualised return and a 10 -year annualised return of 9.8%. Morningstar analyst Simon Dorricott thinks that the fund remains an impressive offering. First State Stewart has been particularly successful at investing in the emerging markets of India and the stock selection skills was a largest positive, Dorricott adds. The fund charges an annual fee of 1.9%.
JP Morgan Emerging Markets, a Bronze Rated fund holding 23% in India equities has gained 6.5% year to date. Although the approach of co-managers of the fund, Austin Forey and Leon Eidelman, may result in the fund underperforming for short periods if markets are driven by commodities, lower-quality names, or macro and political issues, it has generally not shown significant weakness over more meaningful periods, Dorricott said. The fund’s ongoing charge is 1.68% which is competitive compared with the median retail share class within the Global Emerging Markets Equity Morningstar Category.