India may be best known to Australians for its food and cricketers. But the world’s largest country is quickly earning a reputation as a leading investment destination, with one of the best performing share markets in the world.
In our discussion, Zach Riaz, Investment Manager for Banyantree Investment Group, goes into bat for India and tells Kanish Chugh why he thinks it is the ultimate emerging market.
Prime Minister Modi hits a six
India is a country of young people with an exciting future, Mr Riaz explains. And India is set to reap a demographic dividend that in many ways resembles China. This not only includes a strong and vibrant middle class, supported by higher income growth and globalisation. But also greater urbanisation as more people move into the cities.
To make matters better still are the policies introduced by Prime Minister Modi. Mr Riaz says:
“As the [Modi] reform agenda [washes] through the economy and investments start to come through, then we expect good [economic] numbers. And then all that leads into earnings upgrades. All that leads into... re-rating… and if the earnings line starts to get upgrades and that PE multiple starts coming down.”
Why India scores more runs than emerging markets
Why invest in India specifically when I can invest in emerging markets? This is a question that Mr Riaz is sometimes asked. For him, the answer is two-fold.
First, India has outperformed the broader emerging markets index over the past five years – and by a considerable margin. (At ETF Securities, we have seen this first-hand with our own ETFS-NAM Reliance India Nifty 50 ETF (ASX Code: NDIA), which has outperformed emerging markets the past year).
Second, emerging markets indices can be too broad, Mr Riaz feels. This is because they include a vast swathe of countries with little-to-nothing in common such as South Africa, Turkey and Russia. This means using emerging markets ETFs can sometimes be too scattergun or internally contradictory to be useful. He explains:
“Our view is looking at emerging markets more from a bottom-up perspective because there's such divergence in the underlying countries. The fiscal, monetary policies and the structural themes behind it, and also the growth profile, the currencies—they all differ.”
Will the coronavirus bowl India out?
With the supersized population, high-density cities, and weaker healthcare system, some are wondering how India will fare if the coronavirus gets out of hand. Investors have wondered whether economic growth may get derailed.
For Mr Riaz, any doomsday scenario is unlikely. However, the risk needs to be monitored. He says:
“Generally the economic indicators for India coming out of the recovery has been pretty good. The RBI is pretty accommodative…the currency is holding up pretty well, the current account balance is pretty good as well right now... So I think the near-term risk is really how these new infection rates and cases are handled.”