Investing in India – is it too late to benefit from the rally?

The strength of the Indian economy has taken centre stage for those investing in Asia and emerging markets.

Data from the end of June marked an impressive 7.8% year-on-year GDP growth figure, which has propelled relative stock market performance.

The FTSE India index has risen over 6.5%* year to date, in contrast with negative returns in both Asian and emerging indices, which has unsurprisingly garnered significant attention.

Small and mid-caps have done especially well, alongside those leaning into the domestic economy like financial services and consumer-focused names.

Naturally, the recent rally has raised questions about valuations and some fund managers admit it's become challenging to find appealing opportunities.

However, 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. Company balance sheets have also strengthened significantly over the past decade.

Looking ahead to 2024, there are no indications of a slowdown, with the International Monetary Fund (IMF) forecasting 6.3% GDP growth, outpacing other developing economies, notably China.

Taking a longer-term view, by 2028, India's economy is expected to surpass both Germany and Japan, making it the third largest globally.

This growth is underpinned by favourable demographics, with nearly three quarters of its 1.4bn population in the working-age bracket. Consumption, particularly among the middle class, will be a significant theme for investors.

By 2050, India’s projected to contribute approximately 40% to global middle-class consumption, a substantial increase from the current 5%.

Have investors missed the gains?

Now might not be the best time to be overweighting India in your portfolio given how well it’s done, relative to other Asian and emerging market countries.

However, as a long-term investment, the demographic and economic factors mean it deserves a slot in many growth-focused portfolios.

Before you invest though, check your existing investments – do you already own an emerging markets fund? What about an Asian equity fund? If so, you already have investments in India and will likely have benefitted in the recent rally.

If you’re happy with how much you have invested in India is proportional to your long-term investment goals, you might not need anymore.

But, if you don’t have any emerging market or Asian shares, it could be worth taking a closer look at our three fund ideas below.

3 fund ideas to invest in India

One of the best ways to invest in the Indian stock market is through a broader Asian or emerging markets fund.

Although India has a big universe of companies for fund managers to choose from, investing in a single economy, especially one still in development comes with a lot of risk.

By diversifying across countries and sectors, you can help reduce these risks while still having skin in the game.

Here are three fund ideas to consider.

Investing in funds isn't right for everyone. Investors should only invest if the fund's objectives are aligned with their own, and there's a specific need for the type of investment being made. Investors should understand the specific risks of a fund before they invest, and make sure any new investment forms part of a long-term (five years plus) diversified portfolio.

For more details on each fund and its risks, you can use the links to their factsheets and key investor information below.

FSSA Asia Focus

Martin Lau and his team look for quality companies they can invest in for the long term.

They like those with a competitive advantage that others struggle to replicate, like a well-known brand or the ability to raise prices for their products without affecting demand from customers. They should have the potential to grow earnings sustainably over the long run and be run by reputable management teams that don't take unnecessary risks in the pursuit of short-term gains.

As at the end of September, India made up 30% on the fund, versus 15.1% for the manager’s benchmark.

Please note charges can be taken from capital, which reduce the potential for capital growth.

Schroder Asian Alpha Plus

Richard Sennitt and Abbas Barkhordar hunt for companies they think can sustain returns over the long run.

They should have good cash flows, strong franchises, a quality management team, superior corporate governance standards and a strong business model that's able to defend against competition.

Around 18% of the fund is invested in India (as at end of September), with private banks HDFC and ICICI sitting within the top 10 largest holdings.

Please note the managers can use derivatives which, if used, adds risk. They mainly invest in larger companies, but they also have the ability to invest in higher-risk smaller companies.

Stewart Investors Indian Subcontinent Sustainability

For those who want direct exposure, for a small allocation in a portfolio alongside other investments, we like the Stewart Investors Indian Subcontinent Sustainability fund.

Their consistent philosophy, dating back to 1988, focuses on quality, which is centred around three key pillars – management, franchise, and financials.

The fund managers pay little attention to the benchmark and instead construct a concentrated portfolio through a 'bottom-up' approach. Large and medium-sized companies are the primary focus, but they also invest in some higher-risk smaller companies.

Past performance isn’t a guide to the future. Source: *Lipper IM, to 31/10/2023.

More about FSSA Asia Focus, including charges

FSSA Asia Focus Key Investor Information

More about Schroder Asian Alpha Plus, including charges

Schroder Asian Alpha Plus, Key Investor Information

More about Stewart Investors Indian Subcontinent Sustainability, including charges

Stewart Investors Indian Subcontinent Sustainability, Key Investor Information

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