India has been hailed as an “ideal” emerging market for investment, but accessing it can be challenging for those outside the country. CNBC Pro evaluates the case for investing in this fast-growing economy, the risks to consider and how global investors can get involved. The Indian stock market has made headlines this year, and for good reason. India’s stock market is now the fourth largest in the world based on the total value of listed companies, with benchmark indices hitting record highs this year. The Nifty 50 and BSE Sensex indices have risen over 20% in the last 12 months. The country’s economy is also booming. It is expected to grow 7.6% in fiscal 2024, and IMF chief executive Krishnamurthy Subramanian has called it “easily” the world’s fastest-growing economy. India even managed to shrug off political concerns surrounding a big general election this year, with stocks soon recovering losses despite Prime Minister Narendra Modi’s ruling Bharatiya Janata Party’s failure to secure an outright majority in the lower house of Parliament. More broadly, India is in a unique position, according to Kevin T. Carter, founder and CEO of emerging markets investment firm EMQQ Global. “India is an ideal emerging market,” he said while speaking to CNBC via video call. “If we go back to the question of why we invest in emerging markets at all, here is the list: there are a lot of people here, they are young, they are growing and they want to buy something.” Carter cites statistics: India’s economy is growing rapidly (its GDP exceeded analysts’ estimates in January-March), and access to the Internet is growing rapidly. India is the fastest growing premium smartphone market in the world. In addition to this, it is home to a huge number of young residents: more than 40% of the population is under 25 years old. Goldman Sachs, meanwhile, predicts a surge in consumer spending, with 100 million people in the country expected to become rich by 2027, up from 60 million currently. “India remains one of the best-performing equity markets this year, underpinned by the world’s fastest-growing major economy and a strong macroeconomic backdrop,” said James Thom, senior investment director for Asian equities at Abrdn, in a note to clients. “There is a boom in the property market, rising consumer confidence, particularly in urban areas, and a strong cycle of infrastructure investment, including the first signs of a revival in private investment. This has the potential to support both economic momentum and corporate earnings growth.” Kranti Bathini, equity strategist at Wealthmills Securities, agreed that the domestic macro picture looks good, with both corporate profits and tax revenues growing. He acknowledged that some portfolio managers are warning that valuations look “a little stretched” but said the country’s growth prospects should still prove favorable for overseas investors. Want to access India? What You Need to Know There are many ways to enter the market and many potential opportunities—with some caveats. As for individual investors, non-Indian foreigners are not allowed to directly purchase shares through online trading platforms, but they can access the market through mutual funds and exchange-traded funds (ETFs). There are also ADRs and GDRs – American and Global Depositary Receipts – which allow foreign citizens to gain exposure to foreign stocks through their home countries’ stock exchanges. But Arjun Jayaraman, head of quantitative research and portfolio manager at Causeway Capital, says they are not enough. “One of the big challenges of investing in India for foreign investors is the lack of good representation in the form of ADRs or GDRs,” he told CNBC over the phone. This is very different from China, for example, where large technology companies such as Tencent have ADRs, Jayaraman said. Mutual funds and ETFs “I would advise most people, if they really want to experience… the most exciting parts of India, to go through a fund,” Jayaraman said. Indian stocks make up 21% of the Causeway emerging markets fund, the largest weighting behind China, which has 27.4%. When it comes to ETFs, international investors have many options to track Indian indices. Some of the best ETFs in North America include Columbia India Consumer ETF, First Trust India NIFTY 50 Equal Weight ETF and BMO MSCI India ESG Leaders Index ETF. In Europe, the list includes the iShares MSCI India UCITS ETF, which provides exposure to approximately 85% of the stock market, and the Xtrackers MSCI India Swap UCITS ETF Capitalization 1C. In Singapore, the iShares MSCI India Climate Transition ETF invests in large and mid-cap companies with a particular focus on ESG (environmental, social and governance) factors. But Abrdn’s Tom prefers actively managed ETFs. “India is a stock-picking market with many listed companies, including several large small and mid-cap companies that are not included in MSCI India or other major indices such as Nifty,” said He. Another way to get to know the country is through Indian stocks traded in the US or UK, such as travel company MakeMyTrip, which is listed on Nasdaq. Investors can also buy shares of companies listed in the US or Europe that generate significant revenue in India, such as Nokia or broadband provider UTStarcom. Sectors India has big ambitions in manufacturing, infrastructure and technology, and Bank of America analysts described the country as “at the forefront of artificial intelligence” in a May research note. BofA strategists also expect consumption to rise: “India is likely at the same stage China was at 6-7 years ago in terms of the inflection point of discretionary income leading to ongoing lifestyle spending,” they write. In a note to investors, Citi strategist Surendra Goyal said he expected strong year-on-year growth in sectors such as energy, autos, utilities and pharmaceuticals, and suggested performance in banks, industrials and consumer staples would be “subdued.” The bank’s target price for the Nifty index for March 2025 gives it a 7% upside potential. Abrdn likes industries based on several themes, including ambition (where “premium consumption” is growing in cars, food and personal care) and financial inclusion (the country has a strong focus on improving digital access). “Our risks are spread across well-capitalized private sector banks and non-banking financial companies, as well as good quality insurers,” Tom said. EMQQ Global’s Carter is very bullish on internet stocks given the government’s investment in the so-called India Stack, the country’s “digital public infrastructure” based on its identity program that enables instant money transfers and a host of other features. His firm’s Internet and e-commerce ETF includes holdings of technology holding company Info Edge and Reliance Industries, a sprawling conglomerate that operates in sectors ranging from oil to digital services. Potential Risks Politics – and Modi’s continued push for reforms – as well as currency and share price fluctuations are all worth considering when investing in India. “The currency has been remarkably resilient this year,” Jayaraman said. “Given the high interest rates in the US, you’d think India would do worse this year, but it’s actually holding up pretty well.” In the year to the end of March, the rupee fell 1.5% against the US dollar, although this was markedly less than the 8% fall in 2023. It has weakened only slightly since then, although traders say the Reserve Bank of India intervened in the market to protect the rupee, Reuters reported. Jayaraman added that Modi’s lack of a supermajority could mean a higher budget deficit if he comes under pressure from his coalition partners to spend. And if markets falter, the rupee could come under pressure. “If this is the case, then there is pressure on the central bank to cut rates to promote economic growth, and this could put further pressure on the currency,” Jayaraman said. As for the estimates, Abrdn’s Tom said they look high and called India “relatively more expensive.” “While India’s growth potential is the main reason why investors are willing to pay more in this market, judgment is still required in terms of how much an investor is willing to pay for that growth,” he said. Some market participants believe Indian shares are overvalued, with fund manager Jonathan Pines calling prices “too high.” Carter also acknowledges that there are risks. “It won’t be easy. I’m sure there will be some problems along the way, I think there will be an Indian bubble at some point. But now I just think it’s unprecedented [opportunity] and this cannot happen again,” he said. Disclosure: Reliance Industries is the parent company of Network18 Group, which owns CNBC TV-18, CNBC’s local partner in India. —CNBC’s Ganesh Rao contributed to this report. Transform your portfolio with expert analyst ratings Click here to join CNBC Pro!
Chhatrapati Shivaji Railway Terminus in Mumbai, India.
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India has been hailed as an “ideal” emerging market for investment, but accessing it can be challenging for those outside the country. CNBC Pro evaluates the case for investing in this fast-growing economy, the risks to consider and how global investors can get involved.