How can UK retail investors get into India?
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Which famous index of 500 listed companies has returned 249 per cent since the start of 2013?
The answer is the Nifty 500, which contains the top 500 listed companies on the National Stock Exchange in Mumbai. The S&P 500, for reference, returned 189 per cent in the same period.
UK retail investors have shown considerable interest in gaining exposure to the Indian growth story, with significant month-on-month inflows since March, according to the Investment Association, the industry body.
There are £4bn in assets under management in UK retail funds focused on India and the Indian subcontinent, double those in China-focused funds, according to IA data.
For UK retail investors looking to get into India without the research required to invest in individual companies, there are essentially two options: choose an active manager or buy an index tracker.
In terms of index trackers, BlackRock’s iShares offers one for the MSCI India index (up 48 per cent in the past five years) and another for the MSCI India Small Cap (up 67 per cent in the past five years), while Xtrackers has one tracking the Nifty 50 (the 50 largest listed Indian companies). Invesco offers a tracker for the FTSE’s India Quality and Yield Select Index.
Aubrey Capital, an emerging markets investor specialising in consumer-focused equities, offers retail investors access to its Global Emerging Markets fund, which it recently announced was now significantly overweight India. The country accounts for 40 per cent of the fund, up from just 2.5 per cent in 2013 (the MSCI emerging markets index gives India a weighting of roughly between 10 and 16 per cent).
“We focus on the consumer, which we believe will continue to be the best way to invest in the Indian story, and partly as a result, our portfolio is at a premium valuation to the broader market,” said Rob Brewis, fund manager at Aubrey.
“But this has not prevented the Indian portion of our GEM portfolio returning well over 2x the MSCI India return since inception in 2012 until today.”
In the listed investment trust world there is a range of India-focused vehicles, among the largest of which is the JPMorgan Indian Investment Trust, with some £800mn of assets. It currently trades at a 19 per cent discount to its net asset value.
“Beyond the domestic story, India is seeing a geopolitical windfall which may add further tailwinds, as more companies seek to diversify their exposure from China,” said investment manager Amit Mehta.
“We see scope for earnings growth for Indian corporates to continue at elevated rates for many years to come as under penetrated industries such as financials, consumer and healthcare grow from what remains a relatively low base in the global context.”
India at the centre: the verdict of Unhedged and Chartbook
Robert Armstrong and Ethan Wu, co-authors of the FT’s Unhedged newsletter, make the case for investing in India. While Adam Tooze, professor of history at Columbia University and author of the Chartbook newsletter, is more cautious.
Some investors worry that India is expensive now, with price/earnings ratios above even blue chip US stocks. “India’s valuation is the most expensive among major markets globally, with the highest starting [price-earnings ratio] vs prior election cycles,” said Goldman Sachs analysts in a note, adding that Indian stocks tend to rally significantly before national elections.
Some India-focused investment professionals cast doubt on the idea that the country was too expensive to invest. “Relative valuations convey only half the story,” said Ayush Abhijeet, adviser to the Ashoka India Equity Investment Trust, another London-listed investment trust.
“Even as the premium to EMs have expanded, compared to its own recent history, India’s multiples are close to average levels . . . this observation also implies that higher relative multiples are driven more by derating of other large EM markets, such as China, rather than any India specific re-rating.”
Other investment professionals admit there is a premium but insist that India’s potential to grow to a top three economy means it is nonetheless a strong long-term investment.
“Some fund managers admit it’s become challenging to find appealing opportunities [after the recent rally raised valuations],” said Henry Ince, analyst at Hargreaves Lansdown, who advised buying India through Asian or EM funds.
“It’s worth noting that, while pricier than its regional peers, India offers an array of advantages, including improved corporate governance standards, favourable global sentiment, and growing foreign direct investment. Corporate balance sheets have also strengthened significantly over the past decade.”