Is India a great opportunity for International Investors?

Looking at an overview of India’s economy, one could think so. India has a population of 1.2 Billion people and the countries positive demographics and rapidly growing economy make it look very appealing. Key sectors seem very under penetrated.

 

Demographics

65% of India’s population are under the age of 35 and we are seeing a real rise in the middle class. India is best known for it’s Information technology, but other sectors such as Farming and Factory output are huge. With one of the fastest growing workforce’s in the world, its’ predicted to be the third largest economy in the world by 2030.

 

Government

Prime Minister Narendra Modi has been great for India’s economy. He has abolished black money, implemented GST, making it easier for businesses to thrive, implemented new roads and infrastructure and a good educational system.

 

Structural Reform

There is currently a huge Infrastructure build in India. Prime Minister Modi has plans and is currently on a mission to provide electricity for all, housing for all and road infrastructure is booming.

 

Strong Economic Growth

India’s economic growth is quite incredible and it has a high growth market to suit.

The country has GDP growth at 7.4% making it easy to find companies growing at 10-20% EPS growth. The high growth is also providing high ROE (Return on equity) at around 20%.

Banking household debt to disposable income is a mere 9%, Australia’s in comparison is over 100%. Credit cards and Mortgages will provide decades of growth.

The Auto industry is also set to boom with only 32 people out of 1000 owning cars. In comparison the US and Australia would have 800.

The returns in India are speaking for themselves. The index has returned over 1000% over the last 20 years, Australia has returned 140%.

India’s PE’s are also good relative to the growth. Growth in India is currently 1 x earnings and Australia is 3 x earnings.

 

Risks

Risks include:

  • Geopolitical Instability
  • Politics / Elections
  • Macro risks – Inflation and oil prices (Big importer)

India’s risks seem to be more reflective of the short term outlook and one would think a long term viewpoint is required.

 

How to Invest in India

India’s market is quite hard to access and we cannot buy in directly here in Australia. The US market gives us access through ETF’s and that is how I personally invest. In Australia we can get exposure through Emerging Market ETF’s like VGE and IEM and Managed funds like Ellerston Capital.

I personally invest in INDY. You will have to access the US market though. INDY comprises of the top 50 largest Indian equities.

 

Final Word

India’s large cap companies have great management teams and look hard to ignore. Some examples of standout companies are MARUTI, LT, HDFC & HINDUNILVR. Large cap companies are more stable and have proven track records, so ETFs like INDY look great.

India is massively underrepresented in global MSCI funds (0%). This shouldn’t be far away from changing seeing as India is rapidly growing and currently the second largest economy in Asia, meaning we should see growth in Indian equities.

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This is not investment advice. Follow this information at your own risk and if unsure seek the help of a professional Financial Advisor.