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Invest in a rising superpower where enterprise spirit thrives
LAND OF OPPORTUNITY: The rise of India as a global powerhouse was confirmed when David Cameron made the country his first destination as Prime Minister. Picture: Andrew Parsons/PA
CONAL Gregory looks at the prospects for the Asian superpower
India is on track to become the world’s second largest economy by 2050 and the globe’s largest country in population rising by more than one million a month. By 2030, its GDP growth will have multiplied five-fold.
Its cities were old when Nineveh was new. It can trace its principal religion, Hinduism, to 2,000 years before the birth of Christ. It has over 300 languages but its leaders speak with one voice against a return to pre-1991 trade barriers and protectionism.
Today India is a land where enterprise flourishes. Caste and ritual may be endemic but its economic revolution is transforming society. Unlike China, the other great Asian power, it is a mass democracy.
No investor here can ignore such exciting prospects even though the global turbulence this month, which might well become a ‘double dip’ recession, caught India like all economies. Yet its stock market fell less than most.
The Bombay Sensex dropped 4.9 per cent whilst the FTSE 100 fell 9.77 per cent, S&P 500 by 7.19 per cent, Paris CAC 40 by 10.73 per cent and Frankfurt Dax by 12.89 per cent.
Over the past 12 months, the Sensex has oscillated between 17,305-21,004 and last week fell to its lowest level. This could therefore be a good time to either invest in India or top up savings there.
Whilst the Sensex reflects just 30 stocks, two other stock market indices used are the Nifty, which covers 50 stocks, and the MCSI India with 72 holdings.
With some 4,900 listed companies, an investment needs to be through a collective fund or an exchange traded fund which reflects an index. Check that the latter is physically backed by assets (like the iShares S&P India Nifty 50 Index) rather than risk a derivative-based ETF (such as Deutsche Bank’s x-tracker).
According to Lipper research specially prepared for the Yorkshire Post, the top performers over five years are:
* First State Indian Subcontinent I, up 181.7 per cent;
* Pinebridge Global Funds India Equity A, up 165.7 per cent;
* Franklin India A, up 149.9 per cent;
* Aberdeen Global Indian Equity A2 Acc, up 148.6 per cent;
* Comgest Growth India and Danske Invest India A also both performed well, up 148.3 and 141 per cent respectively.
If investment trusts are preferred for their ability to borrow (gearing) and independent boards of directors, New India and JP Morgan Indian secured 120.5 and 75.3 per cent growth respectively over five years.
As India celebrates Independence Day on Monday, it can reflect on some short-term concerns. Inflation remains high at 8.6 per cent (although it averaged 7.99 per cent from 1969-2010) and is likely to be fuelled by higher wage costs with the minimum level expected to exceed 15 per cent.
The ruling Congress party has suffered from corruption scandals and political wrangling. Prime Minister Dr Manmohan Singh, appointed by Sonia Gandhi, has failed to use a stronger mandate from the 2009 elections to ensure economic reforms.
The government is working on a social security system which will provide sufficient economic benefits for the poorest whilst reducing subsidy leakage and tackling the black money markets.
India trades at a premium to other emerging markets but this reflects its attractive demographic outlook – more than 50 per cent are aged under 25 years – and generally better corporate governance standards. Ratings agencies are comfortable with the government’s progress. Standard & Poor’s has retained India’s BBB- investment-grade rating and ‘stable’ outlook to the country’s debt.
Mick Gilligan, of private client stockbrokers Killik, says “the market does not look expensive now given its growth prospects”. Bloomberg forecast earnings to jump by 18 per cent next year. Killik tips First State Indian and New India.
Inflation and “short-term slowdowns are unlikely to derail the long-term investment opportunity”, says Martin Payne, Leeds-based director at stockbrokers Brewin Dolphin.
Companies involved in India’s infrastructure projects – notably energy and transport – are among those likely to succeed. Jupiter, which has a noted Indian Fund (up over 82 per cent in three years), says 700-900 million square metres – the equivalent of Chicago – needs to be built each year for commercial and residential use.
It also calculates that 2,500m square metres of road will have to be paved – 20 times the capacity added in the past decade. India’s size is daunting. England would fit 22 times over with space for Scotland a couple of times.
Payne likes Jupiter India, which typically holds 50-60 stocks with large positions in consumer goods firms and financial stocks. He also tips JP Morgan Indian, the first UK investment trust to invest solely in Indian equities in 1994. It currently trades on a relatively wide 10 per cent discount to net asset value and a competitive 1.2 per cent annual management fee.
An actively managed emerging markets or Asian fund with a fair slice in India is the route suggested by Elizabeth Hastings, chartered financial planner at Leeds advisers AWD Chase de Vere. They include Aberdeen Emerging Markets and JP Morgan Emerging Markets.
Fidelity India Focus Fund’s manager expects GDP to grow by 7.9 per cent and inflation to fall in the second half of the year. For tax-efficiency, the fund is available both as an ISA and a SIPP with single investments accepted from £1,000 and monthly from £50.
Since its launch in 2004, the fund has attracted £2,200m and is primarily invested in financials, IT, consumer discretionary and industrials. Its top holdings are Infosys, Reliance Industries, Icici Bank and Tata Consultancy Services. Lipper says the fund rose 39.8 per cent over three years and by 85 per cent over five years.
Reliance Industries is an exciting choice. Last month the Indian government approved the UK’s largest single Indian investment – BP’s £4.4bn alliance with Reliance to increase oil and gas production.
A more recent fund, Neptune India, which started in December 2006, has already shown fair growth of 56.5 per cent over the last three years. Ewan Thompson manages around 35 stocks which include large holdings in financials and healthcare with a new position in Cairn India, which is in oil exploration.
HSBC’s flagship fund for the country is its GIF Indian Equity which has been running over 15 years, achieving only 27.3 per cent growth over the last three years but 86 per cent over the past five years.
This Luxembourg-registered fund has 109 holdings.
Recent purchases include a private sector bank and adding to IT. It is not available on a regular investment basis but in single purchases of at least US$ 5,000.
PROVING A WISE CHOICE
David Thackwray, 62, from Heslington near York, decided to make India one of his investments in 2003 when he transferred different pension pots into a SIPP (self invested personal pension).
He was impressed with the wealth and size of the Indian middle classes and expected corporate governance to be better in India than China and less volatile.
Selecting JP Morgan’s Indian Investment Trust, David says: “It has proved to be a very good choice and I have made several lump sum investments, both for my SIPP and now my ISA.”
His wife, Marion, has also opted for the same Indian fund, buying directly for her SIPP and not using a broker.
David is semi-retired and manages a family property rental business and the couple have two grown-up children.
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