India is often touted as the new China.
But it’s not, according to Mugunthan Siva, India Avenue managing director,
If anything India is the new US, Siva said, or to be more accurate, the old US.
“India now has a similarity to the US at the beginning of the industrial revolution,” he said, citing a youthful population ready to capitalise on a new technological epoch.
“And with five-times the number of people as the US.”
Last year India replaced China as the most populous nation in the world even while lagging its Asian rival on other economic indicators.
China remains well-entrenched as the second-largest economy in the world with a forecast GDP this year of US$18.5 trillion, IMF data shows, or more than four-times the expected Indian tally of just under US$4 trillion.
Nonetheless, Mugunthan said GDP per capita has increased from about US$1,500 five years ago to more than US$2,800 now with most policy pieces now in place to sustain further strong growth.
Under Prime Minister Narendra Modi, currently vying for his third five-year term as leader of the majority Bharatiya Janata Party (BJP) government, India has adopted a raft of economic and financial reforms.
“Modi’s next term will be critical,” Mugunthan said. “But GDP per capita is on track to grow to about US$5,000 even without any new reforms.”
The country is about half-way through a marathon election process – the biggest-ever in the world to date – that stretches from April 10 through to June 1 over several phases.
While BJP is odds-on to win and retain a one-party majority, he said the more fractious campaign has stirred-up the long-simmering religious divisions in India.
Aside from election volatility, the feel-good Indian economic story faces other risks mostly outside its control as geopolitical tensions ratchet up in the region and beyond.
In general, however, the positive vibes on India outweigh any lingering concerns for investors – both local and offshore – who have been rewarded over the short- and long-term.
“Indian equities have showcased outperformance compared to most
equity asset classes, across all time periods. This includes MSCI
World, MSCI EM, China, Australia and New Zealand,” the March 2023 India Avenue fund update says.
“… Of late India has received far greater attention given the weakness of China’s economic growth and the fall of its equity markets.”
For the year to the end of March, the MSCI India index was up more than 40 per cent (in Australian dollar terms), or about four-times the broader emerging markets (EM) benchmark and well ahead of global equities. India represents about 18 per cent of the EM stock index.
Mugunthan said most offshore investors have exposure to India mainly via large cap stocks rather than the small-to-mid region of the market where his fund plays.
“We invest how local investors do,” he said, in the less-researched part of the market where the next growth stories typically emerge.
Regardless, the India Avenue fund – which holds about 60 stocks, or 1 per cent of the total 6,000 or so listed Indian companies – has upped its large-cap weight this year.
“We have directed new flows to this component given the broad valuations of mid and small-cap companies being expensive in the short-term,” the fund update says. “Whilst the growth potential remains strongest in selective small-cap companies, we are conscious of the significant liquidity that has been invested in this segment broadly.”
Since inception, the India Avenue strategy, structured as an Australian unit trust, has slightly lagged the index after fees. The fund has attracted almost A$100 million as at the end of March from investors across Australia and NZ.
Back on this side of the Tasman last week speaking to advisers, Mugunthan said investors are beginning to warm to the idea of India as a distinct portfolio destination even if it’s not the new China.