Partner Series

PS_Website_page_banner_42c6dc3979.jpg

Why has India Outperformed Emerging Markets?

Thanks to its young population, friendly relations with the US, and rapid urbanisation, India is sometimes seen as an alternative investment destination to China. And with India continuing to outperform its emerging markets peers, many investors are taking a closer look at the world’s most populous nation.

In this partner series, we spoke with Tejas Sheth, the equity research lead for Nippon Life India Asset Management, to learn more.

Why has India outperformed emerging markets?

We started our discussion asking Tejas why India’s share market has outperformed in recent years.

There were four main reasons, he said. First is pent up demand. Roughly 60% of India’s economy is driven by the services sector, which was hard hit by covid. But with India opening back up, a lot of consumer and investment demand for services has started coming through.

The second is a wealth effect. With India being one of the best performing markets globally, companies are more willing to invest in India. And with real estate prices rising, consumers are happier to make discretionary spending as they feel richer.

Third, India was spared the impacts of food price inflation. This is because India has a large agriculture sector and is very self-sufficient for food. Lower inflation then meant there was more room for discretionary spending among Indian consumers.

Fourth is the IT sector: India is the largest exporter of IT services globally. Post-pandemic a lot of digitization has continued, supporting high-quality white-collar jobs in India’s IT sector.

Russian invasion

We then talked about the elephant in the room: Russia.

India has been largely unaffected by the Ukraine-Russia war, Tejas said, as India’s economy is domestically driven. India is not like parts of Europe or Asia which are heavily export-focussed. He said:

“The only impact we are seeing is oil prices going up. [As India is] a net importer of oil and fertilisers, we are seeing some import bills going up.”

He added that with India negotiating with Russia to buy oil cheaply and ignore US-led sanctions, this problem could prove short-lived.

India’s young population and politics

We then asked about India's young population and how it effects India’s economy and its politics. Here, the numbers are quite startling: 50% of Indians are younger than 25, and 65% are below 35. This means that India has almost 1 billion people under 35.

Tejas said that the large population of young people reinforced the Indian consumer story. “These people are trying to grow, trying to consume,” Tejas said. And added that Indian’s are becoming increasingly westernised in their consumption preferences, which supports western brands.

Politically, self-reliance -- Atmanirbhar Bharat – is the lodestar of Indian government policy, Tejas said. Crucial to this is building out India’s manufacturing power, which will allow India to replace imports with locally made goods. Renewable energy investment is part of this, as India is an importer of oil and gas. To this end, the government is subsidising renewables like hydrogen and solar.

Top four favourite stocks

We concluded our discussion asking Tejas what his favourite Indian stocks were, and why.

He gave four favourites: Reliance, HDFC Bank, Larsen & Toubro, and Tata Motors.

Reliance is owned by the Ambani’s, the richest Indian family. Reliance does pretty much everything in India: it’s the biggest oil refiner, supermarket, digital telecoms provider. It now aims to become the biggest renewable energy company too.

HDFC is the largest privately-owned bank. It runs the biggest housing finance company and largest asset management business too. It has recently branched out into insurance with considerable success.

Larsen & Toubro is the largest infrastructure company in India. Much as infrastructure companies were crucial to China’s growth the past 20 years, they will be crucial to India’s, Tejas believes.

Tata Motors is a premium car maker. It makes Jaguars and Land Rovers, which are famous around the world. Tata is being given favourable treatment within India itself and has committed to going electric.

Invest in India with NDIA

ETFS-NAM India Nifty 50 ETF (ASX code: NDIA) 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.