As investors grow weary with China the Indian sub-continent emerges
With tensions rising in the South China Sea and regulatory pressure on the likes of Alibaba (NYSE: BABA) continuing to grow, the Chinese market is becoming an increasingly difficult one to navigate as the government seek to exert itself on a global stage.
China has long been seen as the investment darling supported by an expanding economy and massive population, but as China matures, India is pipped to take its spot and is on the rise. This gives Australia, prime opportunity to forge a closer trade partnership with India which will reduce our reliance on China for decades to come.
“India was initially hard-hit by the pandemic, implementing one of the harshest and most extensive lockdowns globally. Cases appear to have peaked in India in September and there are now signs of economic recovery as seen in indicators such as industrial output and energy consumption,” notes Kanish Chugh, Head of Distribution for ETF Securities.
This has helped India to rise from being listed as the 11th to the 5th largest economy in the world and is likely to take 3rd position within a decade making it difficult to ignore. “There is a growing consensus among commentators that emerging markets offer strong growth prospects as the world emerges from the pandemic, with a population of 1.4 billon, and soon to overtake China as the world most populous nation, India’s economic future is dominated by three key growth drivers,” says Chugh.
The problem with diversified emerging market funds though, is that the percentage, in terms of country weight, is usually quite small most of the smaller but fast growing economies. India for instance represents only 7% of the MSCI Emerging Markets Index, whereas China represents 40 per cent, with just a few key holdings into Tencent, Alibaba and Baidu dominating returns. Investors do not receive a meaningful exposure to the Indian or other EM economy really.
Accessing the Indian market can be quite difficult, the costs are high, and research is hard to come by. ETF Securities’ Reliance India Nifty 50 ETF (ASX: NDIA) is the only fund in Australia that offers exposure to the Indian economy via its benchmark index, the NSE Nifty50 Index. NDIA includes exposure to the 50 largest and most liquid companies listed on the National Stock Exchange of India (NSE) and represents more than 60 per cent of the market capitalisation of India.
The benefit of the Reliance India Nifty 50 ETF is that investors receive full exposure to the Indian economy. The country has been hit hard by COVID-19 and is estimated to post a GDP contraction of 8% in the current financial year. But following on from this, the Economic Survey 2020-21 expects India’s economy to rise at 11 per cent in 2021-22 which is in line with the IMF’s forecast of 11.5 per cent. As the vaccination is distributed and the pandemic subsides, economists are predicting a rapid recovery. The drivers of growth include heavy investment in infrastructure as the country undergoes urbanisation of its massive rural population, in the same way China urbanised years ago. This will present unique opportunities for Indian companies to take part in such a transition.
The Indian government has committed massive infrastructure spend of around USD$1.4tr by 2025. This includes spending on roads, railways, power distribution, renewable energy generation, water, sanitation and gas pipelines. This has presented a unique opportunity for companies in India to get behind the infrastructure initiative and offer their services. Companies Larsen & Toubro are an example of a company positioning itself by offering its engineering, construction and manufacturing to technology and financial services to help with the project.
Another major driver of economic growth is consumption, with India set to benefit from a rapidly expanding middle-class. While foreign companies have an opportunity to access this trend, domestic based companies have cultural and physical base advantages in reaching this audience. Hindustan Unilever, the largest consumer staples company in India, has direct coverage of 3.5 million outlets and around 88 million consumers within India.
Another prominent name in the space in the nation’s largest company, Reliance, a behemoth in oil and gas, telecommunications and retail which is rapidly expanding its consumer-facing footprint in the telco and retail sectors. A telling consumer statistic is that the pandemic has supported increased interest in personal vehicle ownership – 57 per cent of Indian consumers considered purchasing a car in 2020 compared to the global average of 35 per cent says Chugh.
What sort of companies does NDIA invest in?
NDIA invests in the 50 largest companies by market capitalisation listed on the NSE. To provide some examples:
- HDFC Bank is one of the largest companies in the Nifty50. It is one of the largest banks and the largest private sector lenders in India. Its distribution network spans the country with over 5,000 branches and over 13,000 ATMs. HDFC Bank is amongst the top three players in auto and personal loans, commercial vehicles, cash and supply chain management.
- Reliance is an Indian conglomerate that has businesses across India engaged in energy, petrochemicals, textiles, natural resources, retail, and telecommunications. It is one of the most profitable companies in India and largest publicly traded company in India by market capitalisation. It has been ranked 96th on the Fortune Global 500 list of the world’s biggest corporations as of 2020.