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10 March 2022

Eyes On India - The New Norm in Asia

For many years, India was viewed with a certain amount of scepticism by many in the investment community. High levels of poverty, poor regulatory frameworks and a lack of large enough investable companies had prevented many from allocating towards the country, despite a rapidly growing population and economy. India was, more often than not, included in small quantities in both fund holdings and investor portfolios, despite the size of its economy, with many reluctant to hold direct shares or even funds dedicated to the country.
 
China had taken centre stage as the number one emerging market to look to for business and investment, with billions poured into financial assets across the country. Thanks to substantial backing from the Chinese Communist Party, China played host to a booming tech sector that has seen the likes of Alibaba, Tencent and Meituan all skyrocket in value and become household names globally. Healthcare and other sectors also roared as the country looked to create a self-sustaining economy that could rival the US for innovative technologies. This meant that for some time China was the dominant exposure within Asia-focused funds and allocations within portfolios; even to this day China remains the single largest country by far within the MSCI Asia ex Japan index at 36.95%, with India lagging behind both Taiwan and South Korea, two countries with far smaller economies.
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However, a recent clampdown on exploitative business practices by the Chinese government has hit the technology and education sectors hard, dragging down other parts of the economy with it and leading to a torrid year for Chinese equities. Such worries have now affected the region for nearly a year now, with the MSCI China index down -25.7% over the period, reflecting the sour mood of investors towards the Asian superpower.
 
India, on the other hand, has shown a strong resilience towards any problems within the region, bucking the trend with a blowout couple of years in equity markets. The country has positioned itself as one of the major beneficiaries of the problems in China, as investors and fund managers look to redeploy capital within the region after a lack of trust in Chinese financial markets. Many investors across the globe still remain hungry for risk and continue to allocate towards the region as a way to diversify and improve the performance of their portfolios in the long term.

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However, it’s not just the problems within China that have led to the relocation of capital towards India. The economy has continued to grow strongly, despite a poor handling of the pandemic; social improvements have also been made in rapid fashion, with the share of the population considered impoverished (living on less than US$1.9 per day) declining from 37.1% in 1990 to just 9.6% in 2015, affecting hundreds of millions of lives.
 
The ability to provide its residents with clean water, quality housing and career prospects has fuelled the growth of industry in India. As employment increases and spending rises with it, Indian businesses are now able to both flourish domestically and compete internationally. In fact, just recently the Indian conglomerate Reliance Industries struck a deal to buy the Mandarin oriental hotel in New York City for just shy of US$100m, adding to the growing empire of Mukesh Ambani, Asia’s richest person.
 
The booming business environment has also caught the attention of several powerful US firms who are looking to capitalise on the growth in the region and get their foot in the door when it comes to entering and understanding the Indian market. Both Facebook and Google have invested large sums of money into Jio Platforms, the Reliance-owned mobile network operator which has amassed more than 400m subscribers in less than four years of its existence. Google has invested US$4.5bn whilst Facebook has also ploughed US$5.7bn into the firm, for a combined stake of 17.72% that represents a significant foray into the Indian market.
 
General capital inflows from investors have also increased as a result, with a 112% jump in foreign direct investment equity inflow during the first four months of the financial year 2022, reflecting the appetite that international investors have towards India. Top Asia Pacific funds have also taken note with the Pacific Horizon Investment Trust, a highly successful Baillie Gifford-run investment trust focused on the region, pivoting away from China and into India. In fact, since 2018, the portfolio has decreased its exposure to China by over 16% and increased its exposure towards India by 20%, with countries such as Singapore and Indonesia also seeing their slice of the pie increase.
 
The past year has been nothing short of a revelation for investment into India. A flourishing economy and business landscape and vastly improved social progress alongside problems in China have created the need for investable opportunities in India, many of which have provided excellent returns for those able to tolerate higher risk. Given the continued lack of communication and trust in China and the stellar returns in India, capital inflows are likely to continue trending upwards, siphoning much of the cash initially earmarked for China.

This article was taken from the Winter 2022 issue of 1875. To subscribe to our investment publications, please visit www.redmayne.co.uk/publications.
 
Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned. The value of investments and any income derived from them may go down as well as up and you could get back less than you invested.

 
Eyes On India - The New Norm in Asia
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