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Kanish Chugh

India poised to take the lead in emerging markets

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4 minute read

When Prime Minister Scott Morrison announced earlier this month that Australia and India had signed the Australia-India Economic Cooperation and Trade Agreement, he highlighted the strength of India’s economy, which is expected to grow by 9 per cent in the current financial year.

Forecasts of India’s economic growth vary. In January, the World Bank issued its Global Economic Prospects report, which included forecasts of Indian GDP growth of 8.3 per cent this year and 8.7 per cent in 2023.

What is not in question is that India has one of the highest, if not the highest, economic growth rates in the world and looks set to maintain that strong growth.

In light of this, and the weak overall returns from emerging markets (EM) funds in the past year, investors need to consider the case for a more focused approach to EM investing with India as the core holding.

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The Indian government has plans to develop the country as a manufacturing centre, to digitise services and to shift to clean energy.

The good news for investors is that the Indian corporate community has embraced these changes and is delivering results in the form of growth and higher earnings.

This financial year, India will record US$230 billion of IT exports and Indian IT companies, such as Infosys and Wipro, who are world leaders in IT consultancy. The country is a leader in the provision of global capability centres – large IT facilities that combine outsourced back office functions, business support and call centres, as well as app development, maintenance, analytics and help desks.

India’s leading equity market benchmark, the NSE Nifty 50 Index, returned 14.5 per cent in the 12 months to 23rd March 2022. ETF Securities’ ETFS-NAM India Nifty 50 ETF (ASX Code: NDIA) tracks this Index.

Top stocks in the Index include energy, retail and telecommunications conglomerate Reliance Industries, IT consultancy Infosys and the world’s tenth largest bank HDFC Bank.

The performance of broad emerging markets equity funds over this period is negative, largely due to their exposure to the Chinese market. The holdings in Chinese stocks in Australian listed EM ETFs are as high as 40 per cent of the portfolio.

With Chinese stocks pulling back due to rising geopolitical tensions, rising COVID-19 case numbers and government intervention tightening business rules, the broad EM market is suffering.

India comes with less political risk. The Indian government is less prone to arbitrary interventions than its Chinese counterpart. Additionally, India is a NATO power and ally of the US, meaning it is not in the crosshairs of the global trade war.

With ETFs available on the ASX the power sits with the investor to make the choice as to how they view and invest in Asia and EM but make sure to look at what you truly are getting when taking a broad exposure.

To get specific country exposure, investors could overweight their existing Asia/EM exposures via a pure India exposure, such as NDIA.

Kanish Chugh, head of distribution, ETF Securities

India poised to take the lead in emerging markets

When Prime Minister Scott Morrison announced earlier this month that Australia and India had signed the Australia-India Economic Cooperation and Trade Agreement, he highlighted the strength of India’s economy, which is expected to grow by 9 per cent in the current financial year.

Kanish Chugh
Kanish Chugh
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Neil Griffiths

Neil Griffiths

Neil is the Deputy Editor of the wealth titles, including ifa and InvestorDaily. 

Neil is also the host of the ifa show podcast.

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