The promising fundamentals that exist today in corporate India look set to spur the domestic equity market to outpace its emerging markets (EM) peers.
This outlook is in line with some of the significant steps that the country has taken more recently. For example, it has leapfrogged the UK as the fifth-largest economy globally and, in September, became the first country in the southern hemisphere to host the G20 summit. In combination, these and many other achievements reinforce India’s increasing influence on the world’s economic and geopolitical stage.
For Prashant Kothari, senior investment manager for the emerging equities team at Pictet Asset Management, India is also the most anticipated of the EM economies in global equity portfolios.
India’s stock market hit an all-time high valuation of US$3.8trn last month and Indian equities have been outpacing their counterparts in EM for some time.
“With its status as a leading diverse economy… investors need to consider India as the biggest emerging market for future investments,” he explained.
A diverse and robust economy
Such strengths reflect the country’s large industrial sector, a growing consumer market and intensifying competition.
At the same time, the digitalisation of the economy should provide a boost to corporate returns on equity, plus help to activate rural and urban areas of the country to deepen financial inclusion.
“For investors, these measures enable micro, small and medium enterprises, responsible for 30% of India’s GDP, to access credit for business expansion,” added Kothari.
At the same time, Indian companies are becoming more disciplined, both operationally and financially.
This is partly thanks to digitalisation, as a growing number of businesses that traditionally operated offline create consolidated web-based platforms. “This is occurring in industries as diverse as travel, food, healthcare and manufacturing,” Kothari said.
Investment pathway
Investors can also point to recent market-oriented reforms and regulatory interventions in India that have improved the transparency and credibility of fiscal and monetary policy.
According to Kothari, these developments have simultaneously boosted the resilience of the economy to external shocks, making it easier for foreigners to invest in the country.
“Ultimately, India’s foreign inflows of US$16bn so far this year – representing more than half of total net inflows into global stocks – signify why Indian equities are a core and growing allocation within a global equity portfolio,” he added.
