India has been called the “perfect” emerging market to invest in, but it may be hard for outsiders to get in. CNBC Pro assesses the reasons to invest in this fast-growing economy, the risks to consider, and how investors around the world can get involved. India’s stock market has been in the spotlight this year, and for good reason. The Indian stock market is now the fourth largest in the world as measured by the total value of listed companies, and the benchmark index has hit consecutive record highs this year. India’s Nifty 50 and BSE Sensex indexes have both risen more than 20% in the past 12 months. India’s economy is also looking up. It is expected to grow 7.6% in fiscal 2024, and IMF Secretary-General Krishnamurti Subramanian has said India is “undoubtedly” the fastest-growing economy in the world. India has even managed to ignore the political concerns surrounding this year’s big general election, with stocks quickly reversing losses despite Prime Minister Narendra Modi’s ruling Bharatiya Janata Party failing to secure an absolute majority in the lower house of parliament. The big picture According to Kevin T. Carter, founder and CEO of emerging markets investment firm EMQQ Global, India is in a unique position. “India is the perfect emerging market,” he told CNBC over a video call. “If you think about why you invest in emerging markets in the first place, it’s: They have a large population, they’re young, they’re growing, and they want to buy things.” Carter reels off stats: The Indian economy is booming (GDP in the first quarter beat analysts’ expectations), internet access is growing rapidly, and India is the fastest-growing premium smartphone market in the world. Add to this that India has a very young population, with more than 40% of the population under 25. Meanwhile, Goldman Sachs is predicting a surge in consumer spending, with the country’s wealthy expected to grow from 60 million today to 100 million by 2027. “India remains one of the best performing stock markets this year, supported by the world’s fastest growing major economy and a resilient macro environment,” James Tom, senior investment director for Asia equities at Abred, said in a client note. “There is a real estate boom, improving consumer confidence, especially in urban areas, and a robust infrastructure capex cycle, including signs of a recovery in private capex. This could help sustain both economic momentum and corporate earnings growth.” Kranti Batini, equity strategist at WealthMills Securities, agreed that the macroeconomic situation in the country looks solid, with both corporate profits and tax revenues increasing. He acknowledged that some portfolio managers have warned that valuations look “a bit high,” but said the country’s growth prospects should still be favorable for overseas investors. Want to gain access to India? What you need to know There are a variety of ways to enter the market and plenty of potential opportunities, but there are some caveats. As for retail investors, non-Indians living abroad cannot buy shares directly through online trading platforms, but can access the market via mutual funds and exchange-traded funds (ETFs). There are also ADRs and GDRs (American Depository Receipts and Global Depository Receipts), which allow overseas nationals to access foreign stocks through their own country’s stock exchanges. But there aren’t enough of them, says Arjun Jayaraman, head of quantitative research and portfolio manager at Causeway Capital. “One of the big issues with investing in India for international investors is the lack of proper representation in terms of ADRs and GDRs,” he told CNBC in a phone interview. This is quite different from China, for example, where big tech companies such as Tencent have ADRs, Jayaraman said. Mutual funds and ETFs “If you really want to invest in the most exciting parts of India, I would advise most people to go with funds,” Jayaraman said. Indian stocks make up 21% of Causeway’s emerging markets fund, second only to China at 27.4%. As for ETFs, there are a number of options for international investors to track Indian indexes. Top ETFs in North America include Columbia India Consumer ETF, First Trust India NIFTY 50 Equal Weight ETF and BMO MSCI India ESG Leaders Index ETF. In Europe, the list includes iShares MSCI India UCITS ETF, which offers exposure to about 85% of the equity market, and Xtrackers MSCI India Swap UCITS ETF Capitalisation 1C. In Singapore, iShares MSCI India Climate Transition ETF invests in large and mid-cap companies with a focus on ESG (environmental, social and governance) factors. But Abrdn’s Thom prefers actively managed funds over ETFs. “India is a stock-picking market with many listed companies, including good mid-caps and small caps that are not included in other mainstream indexes such as MSCI India or Nifty,” he said. Another way to get exposure to India is to take advantage of Indian stocks traded in the US and UK, such as Nasdaq-traded travel company MakeMyTrip. Investors can also buy shares of US- or European-listed companies that have big revenues in India, such as Nokia and broadband provider UTStarcom. Sectors India has big ambitions in manufacturing, infrastructure and technology, with Bank of America analysts describing the country as an “AI epicenter” in a May research note. Bank of America strategists also expect consumption growth, saying “India is probably in the same situation as China was 6-7 years ago, i.e. a tipping point in disposable income that will lead to continued spending on lifestyle improvements,” they wrote. In a note to investors, Citi strategist Surendra Goyal said he expects strong year-on-year growth in sectors such as energy, auto, utilities and pharmaceuticals, and suggested performance in the banking, industrials and consumer staples sectors will be “subdued.” The bank has a March 2025 price target for the Nifty index of 7% upside. Abdon likes the sector based on several themes, including “aspiration,” which is seeing “premium spending” growing in autos, food and personal care, and financial inclusion, which is the country’s focus on improving digital access. “Our exposure is spread across well-capitalized private banks and non-banking financial companies, as well as good-quality insurance companies,” Tom said. EMQQ Global’s Carter is very positive on internet stocks, as the government is investing in the so-called India Stack, a “digital public infrastructure” based on ID programs, which allows for instant remittances and a range of other capabilities. His firm’s Internet & E-commerce ETF includes shares in tech holding company InfoEdge and Reliance Industries, a giant conglomerate with operations in a wide range of sectors from oil production to digital services. Potential risks Politics, as well as Modi’s continued push for reforms, currency fluctuations and stock valuations are worth considering when investing in India. “The Indian currency has been surprisingly strong this year,” Jayaraman said. “You would think India would have performed worse this year, given the high interest rates in the U.S., but it’s actually held up pretty well.” In the year to the end of March, the rupee fell 1.5% against the US dollar, significantly less than the 8% fall in 2023. Since then, the rupee has only fallen slightly, but traders say the Reserve Bank of India is intervening in the market to protect the rupee, Reuters reported. Jayaraman added that Modi’s lack of a supermajority could lead to a wider fiscal deficit if he faces spending pressure from his coalition partners. And if markets become volatile, the rupee could come under pressure. “If that happens, there will be pressure on the central bank to lower interest rates to help growth, which could put further pressure on the currency,” Jayaraman said. On valuation, Abuldon’s Tom said India looks expensive, describing it as “relatively expensive.” “India’s growth potential is the fundamental reason investors are willing to pay a premium in this market, but still, a judgement call is needed in terms of how much investors are willing to pay for that growth,” he said. Some market makers believe Indian stocks are overvalued, with fund manager Jonathan Pines describing prices as “too expensive”. Carter acknowledges there are risks: “It’s not going to be easy. There will definitely be hiccups along the way. I think at some point we’ll see an India bubble. But for now I think India is a unique opportunity.” [opportunity] And this must never happen again,” he said. Disclosure: Reliance Industries is the parent company of Network18 Group, which owns CNBC TV-18, CNBC’s local India partner. —CNBC’s Ganesh Rao contributed to this report. Transform your portfolio with expert analyst ratings. Click here to join CNBC Pro.
Chhatrapati Shivaji Terminus Station in Mumbai, India.
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India has been touted as the “perfect” emerging market to invest in, but it could be tough for outsiders to break into. CNBC Pro assesses the reasons to invest in this fast-growing economy, the risks to consider, and how investors around the world can get involved.
