Investing in India in the post-COVID world can provide attractive returns
Kanish Chugh
Investors considering emerging markets for diversification are often attracted to the Asian region due to the well documented growing middle-class and economic prospects that build a growth case for this region.
While China has been a long-held investment darling, India’s star is on the rise and many nations, including Australia, are seeking to forge closer trade partnerships, specially in 2021.
India was initially hard-hit by the Covid pandemic, implementing one of the harshest and most extensive lockdowns globally. Cases appear to have peaked in India in September and there are now signs of economic recovery as seen in indicators such as industrial output and energy consumption, notes Kanish Chugh, Head of Distribution for ETF Securities.
Over the past 12 years, India has jumped from the 11th to the 5th largest economy in the world and is likely to take 3rd position within a decade.
“This makes it difficult to ignore India when building a global equity portfolio and there is a growing consensus among commentators that emerging markets offer strong growth prospects as the world emerges from the pandemic,” says Chugh.
“With a population of 1.4 billon, and soon to overtake China as the world most populous nation, India’s economic future is dominated by three key growth drivers.
“First is Infrastructure. The Indian government has committed to USD 1.4tr infrastructure investment by 2025, with roads, railways, power distribution, renewable energy generation, water, sanitation and gas pipelines a primary focus of the Modi government. A range of listed companies in India stand to benefit from the infrastructure surge including Larsen & Toubro with services extending from engineering, construction and manufacturing to technology and financial services.
“Reform and fiscal policies are also driving India’s growth agenda. The introduction of a GST in 2017 which centralised and simplified indirect taxes and a raft of corporate reforms have made business operation and regulation simpler and more transparent. At the same time, a focus of fiscal stimulus has been poverty reduction programs.
“The third major driver of economic growth is consumption, with India set to benefit from a rapidly expanding middle-class. While foreign companies have an opportunity to access this trend, domestic based companies have cultural and physical base advantages in reaching this audience. Hindustan Unilever, the largest consumer staples company in India, has direct coverage of 3.5 million outlets and around 88 million consumers within India. Another prominent name in the space in the nation’s largest company, Reliance, a behemoth in oil and gas, telecommunications and retail which is rapidly expanding its consumer-facing footprint in the telco and retail sectors.
“A telling consumer statistic is that the Covid pandemic has supported increased interest in personal vehicle ownership – 57% of Indian consumers considered purchasing a car in 2020 compared to the global average of 35%.
“It can be difficult for Australian based investors to directly access the Indian market for listed shares. Investors can consider ASX listed companies with substantial operation in India or managed funds with an Indian or Asian focus.
“The simplest and most efficient route is the ETFS Reliance India Nifty 50 ETF (ASX Code:NDIA) which is the only fund in Australia that offers exposure to the Indian economy via its benchmark Index, the NSE Nifty50 Index.
“NDIA includes exposure to the 50 largest and most liquid companies listed on the National Stock Exchange of India (NSE) and represents more than 60% of the market capitalisation of India,” adds Chugh.
NDIA is rated ‘Investment Grade’ by rating house Lonsec (October 2020).
