FundCalibre analysis: Is India a bright spot on a dark horizon?

by | Oct 19, 2022

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Last week, the International Monetary Fund (IMF) described India as a “bright spot on a dark horizon”. Citing its fast-growing economy, even during these difficult times, IMF managing director Kristalina Georgieva added that “most importantly, this growth is underpinned by structural reforms.”

And it’s not just the economy that has been doing well while everywhere else has been floundering – the stock market has also outperformed its global peers. Over the past year, amidst ongoing global turmoil, the Indian stock market has managed to stay in positive territory having returned 4.7%*. That’s some 10 percentage points more than the global stock market* and 20 percentage points more than the wider emerging market index*.

Can its good fortunes continue for investors?


Here, Juliet Schooling Latter, research director at FundCalibre, gives three reasons to invest, and two reasons to hesitate:

Three reasons to invest in India:

A fast-growing economy

“India is a low-income, fast-growing economy, at an early stage of urbanisation with a young and increasingly dynamic population. It is benefiting from the manufacturing move away from China and the ‘Make in India’ initiative has already resulted in exports growing rapidly. The 2022 monsoons have again been successful, and inflation is well-controlled. While other economies around the world are struggling, India is still thriving.”


Stable politics

“Prime Minister Modi’s government is already on track to have increased infrastructure capacity more over a ten-year period than the previous 65 years. The government is also making good use of technology to both stamp out the corruption that has hampered its economy for so long and move from a physical to a digital world. Modi remains popular and likely to win the next elections, which will be held before May 2024.”

Thousands of potential investments


“India benefits from a very deep stock market with over 4400 listed companies. What’s more its market is relatively uncorrelated to the Chinese market with a correlation of just 0.27 over the last five years**. This means investing in India has the advantage of acting as a diversifier to overall Asian and emerging market exposure which is typically dominated by China.”

But two reasons to hesitate:

A high oil price

“Although the Indian economy is less sensitive to the oil price than it was previously, and over time this sensitivity will continue to diminish, a significant and sustained increase in the oil price could create significant headwinds. According to Alquity, every $10 increase in the price of a barrel of oil would increase the trade deficit by 0.4% of GDP*. This would be manageable, given India has $573bn of foreign exchange reserves*, but would clearly temporarily dent the investment case.”


Valuations are high

“The Indian stock market always trades on the expensive side, and it looks particularly expensive today. According to Pacific Asset Management, the MSCI India trades around 22x current year’s expected earnings which is a record for that market and compares to historic valuations of between 13x and 16x***. With developed markets now so much cheaper, some may question the need to pay up for India today when they could wait for the market to fall back and invest then instead.”

Five funds to consider:

Goldman Sachs India Equity Portfolio


“This fund aims to capture the growth potential of the Indian economy. It is focused on investing in sound businesses of all sizes. Company meetings are a crucial part of the process, and the team’s ability to meet companies on the ground in India differentiates it from many in its peer group.”

Alquity Indian Subcontinent

“This is a high conviction fund focused on tapping into the strong domestic Indian equity market. It invests in companies lower down the market cap spectrum which other investors often overlook and is therefore towards the top of the risk spectrum. It has, however, rewarded those who believe in the Indian success story over the longer term.”


Stewart Investors Asia Pacific Leaders Sustainability

“This fund invests in the shares of large and medium-sized companies that are either based in or have significant operations in the Asia Pacific region. Specific consideration is given to companies that are positioned to benefit from, and contribute to, the sustainable development of the countries in which they operate. It currently has 48.7% of the portfolio currently invested in Indian equities^.”

Aubrey Global Emerging Markets Opportunities


“This fund invests in companies offering products and services to the upwardly mobile, ambitious, and aspirational population centres which account for over 70% of the world’s growth. There is a focus on firms which either have dominant or first-mover advantage. The fund currently has 42.1% invested in Indian companies^^.”

FSSA Global Emerging Markets Focus

“This fund invests in 40-45 large and medium-sized companies in emerging markets. The manager has an absolute return mindset and looks for quality companies that can demonstrate sustained and predictable growth over the long-term. The current allocation to Indian equities is 29.5%^^.” 


*Source: Alquity, August 2022
**Source: FE fundinfo, total returns in sterling, MSCI India, MSCI Emerging markets and MSCI ACWI, one year to 17 October 2022
***Source: Pacific Asset Management, October 2022
^Source: fund factsheet, 31 August 2022
^^Source: fund factsheet, 30 September 2022

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