While it might be a picture of economic gloom in most parts of the world, the same can't be said for India right now. It's home to one of the world's fastest growing economies with the IMF predicting growth of nearly 6% this year. Investments are booming and the country's two main stock indexes hit record highs in June. What's behind the bullishness? And can you make money in this emerging market? So Ramesh from money mind today, it's five things to
know about investing in India. You'll be hearing from Chau Chana Market strategist at Saxo Markets and James Chiu, Chief Investment Officer Southeast Asia at HS BC. Global private banking and wealth James. Let's start with you. Tell me just what's behind this exuberance in the Indian market right now.
India is the fifth largest economy, but increasingly India is also the fifth largest stock market in the world. And that's really because in recent months, we are seeing quite a bit of interest from global investors to Indian market and there's good reason for it because over the short term, we are seeing economic momentum improving in India. The PM I is actually extremely strong consumer spending is also picking up quite strongly because of digitization.
So the short term view is positive and there is increasingly more and more interest into India. And also we are actually bullish on India. Likewise, we think that investors should actually think about India for their long term investing.
Charro what's propelling this bullishness? I mean, some are really saying that geopolitics is playing in India's favor right
now. That's certainly one aspect of it where you know us China tensions have prompted companies to look beyond China and set up their manufacturing base elsewhere as well. You know, China plus one strategy as we call it. But along with that, you know, pandemic kind of exposed how vulnerable some of the supply chains were. And a lot of companies are actually now focusing on new shoring and French shoring to kind of ensure a little bit more resiliency in supply chains. So that is playing a
part as well. For example, Apple is a test case for India where it is moving a huge part of its manufacturing to India. And if it is able to supply the kind of iphones, it plans to deliver by 2025. I think a lot more companies will get the impetus to also move their operations to India. So that's one and in terms of the market impact, it could be pretty significant for India because as these manufacturing centers move out of China, we could see
a further slowdown in China. And that's the structural transformation that China is going through. And that again would prompt a lot of investors to look for investments in emerging markets that could bring the same kind of returns to their portfolios as China did at one point of time,
James, what are for you, the biggest reasons for investors to be interested in India on
technology. What we have seen is that the digital economy, it's really a game changer. I mean, the pandemic has made the world more digital and economy like India, largely informal, largely rural benefits a lot from having everything being digital. So buyers and sellers transactions are now digital. Uh that actually means that if money can flow with less friction, it also means consumption will increase. But also it will
set the stage for the next round of growth. With this digital economy, with all this information that's captured digitally, it will allow insurers, it will allow lenders to provide services to consumers that were previously not reached in that sense. So this is going to be very interesting the digital economy. It's going to be fascinating to watch. And the second part will be the rising income of India, the middle class. Uh the population of India is now
the largest in the world 1.4 billion people. But I think the dynamic is also of course very different. They are much younger on average 10 years younger than those in in in China. And also they live largely in bigger families in rural areas. They will actually increase their spending their incomes in the years ahead. So it's very easy that the middle class of India is going to double itself in the next 10 years. I think
that's something to watch out for. And clearly one of the biggest economic locomotive that investors have to pay attention to
Indian stock markets have reached fresh peaks in June. as investors buy into the India growth story, economic momentum is picking up and consumer spending too. Western tensions with China are playing in India's favor as companies look to diversify supply chains and set up new manufacturing base. Now within India, a burgeoning middle class is spending more and their numbers
are expected to double at the same time. A strong push for digitization is already boosting spending by giving more people access to cash and to credit. So tell us how does one get started investing in India? And what sort of returns are we looking at?
There are various ways to implement it? You could do it through uh ETF or you could do it through uh actively managed fund. So there are various ways to do it. But in terms of, let's say uh performance wise, I mean, it's very hard to project what's performance in
the future. But if you look at the last five years, if you are invested in India, dollar terms, you will be up 70% compared to, let's say if you invest in China, for example, over the last five years, in dollar terms, you will be down 30%. So that's the difference in terms of the trajectory that has changed over the last five years. Indian markets, the returns that they generate are extremely reflective of the growth
that Indian economy can generate. So the IMF is actually expecting over 6% kind of GDP growth in India over the next five years. And if you look at it in terms of nominal growth and adding inflation to it, it could be about 11 to 12% of nominal growth in India. And if you are an active investor in India, you could easily assume that kind of growth to translate into earnings growth of about 11% for an active investor. It could also mean growth of up to about 15%. The last two years.
We've seen India markets really outperforming emerging market indices. So that has obviously led to its valuations being a little bit expensive regions are still justified. Given the long run potential that India provides, it's very important to not just look at the absolute return but also to how does India could
help in constructing a portfolio. Because essentially what we have found is that in terms of correlation wise, the Indian market has a lower correlation compared to other markets in the emerging markets or even with the whole global portfolio. So what it means is that if you add India into the allocation, it does reduce your risk whilst either keeping your returns intact or even increasing your returns.
So I think that's a very crucial element because a lot of the companies uh in India that you invest into are are geared towards its own local consumption, its own local growth dynamics, which is actually very strong. So I think that's why uh having an India location, I think makes sense for long term investors. Are
there any sectors in particular? We should be looking at
if you look at some of the sectors which are linked to these macro stories that we've been talking about the consumer story, which is obviously strong because of demographics, because of the rising middle class, you have a lot of FMC G sectors, banking sector, which has the potential to do well. If you look at the manufacturing story that is gaining momentum there, again, you have manufacturing sectors that could be quite interesting, there's infrastructure which will be
needed to support those manufacturing sectors as well. So logistics could be quite interesting and the whole digitization story which is actually improving financial inclusion in India could also again bring the banking sector in focus. So there's really a host of opportunities in India at the moment. And
what sort of risks should investors be aware of before dipping? Well,
there are risks as with all investments. Um One risk of course is that Indian valuation in terms of equity market is is fairly high compared to the other markets. But there's good reason for it really because return on equity is also higher 14 to 16% compared to the rest. Uh But also uh it, it does have a volatility as well. Uh Because recently, there's more and more retail investors,
especially in India buying into Indian. So that will create quite a bit of short term exuberance from time to time. But I think ultimately, it's very important that investors, when they think about India, they think about long term investments, 5 to 7 years hold out through the entire business cycle.
I think of course, political and policy risks are something that will be extremely key for investors to keep in mind, India is a commodity importer as well, especially an oil importer and any surge in oil prices could be destabilizing for the Indian economy. So that's something investors should keep in mind as well. And overall, let me see, paralysis given that we will be entering the election phase pretty soon in India. I think that's something that we need to continue to watch as
well. Finally, I want to know what's your long term outlook for the Indian economy? The
Indian economy is going to be a very exciting economy in the next 5 to 10, 10 years, there will be a sort of a confluence of two sectors, one the old economy and one the new economy currently around 85% of India. India's economy is still the old economy. The rest, the 15% of the new economy is starting to grow, whether it's manufacturing, whether it's renewable energy, whether it's high tech exports, that's starting to kind of pick up in the next five years.
You're going to see that, that new economy coming much and much more important to India. And if India can make that whole transition, it's very easy that it could actually double itself in the next seven or even 10 years. If that whole new economy takes root, investing in any emerging market is always a risky proposition. The high returns that we generate are also underpinned by high risks. And of course, India has its share of risks as well.
So it is going to be a bumpy ride, especially given the fact that it's not a domestic story only anymore. There is going to be a lot of interlink between how global markets perform and given that we are entering this phase of a global slowdown. Potentially that could also play its part in the Indian market. Investing in India is a game of patience and that's what investors should really be aware about.
So investors are buying into the Indian growth story, propelling India's stock market to record highs in June as economic momentum and consumer spending pick up India is also benefiting from geopolitics as countries look to diversify supply chains and set up alternative manufacturing base to invest in India, consider an ETF sectors to look out for include finance, manufacturing, consumer goods and the green economy.
You can expect double digit returns, but it comes at a price quite literally Indian stocks come at a premium. But analysts say it's a worthy price to pay if you can ride up the volatility that's expected with any emerging market investment. Now, that's why it's important to be able to hold your investments in India for the medium to long term, especially as the country heads towards general
elections next year, which could result in some short term volatility. Well, that's five things to know about investing in India. You've been hearing from China Market strategist at Saxo Markets and James Chiu, chief Investment Officer for Southeast Asia at HS BC. Global Private banking and wealth Money Mind is every Saturday 8:30 p.m. on Media Corp CN A. You can also catch us on CN A dot Asia and on youtube.