WEBVTT - 5 things about investing in India

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<v Speaker 1>While it might be a picture of economic gloom in

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<v Speaker 1>most parts of the world, the same can't be said

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<v Speaker 1>for India right now. It's home to one of the

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<v Speaker 1>world's fastest growing economies with the IMF predicting growth of

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<v Speaker 1>nearly 6% this year. Investments are booming and the country's

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<v Speaker 1>two main stock indexes hit record highs in June. What's

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<v Speaker 1>behind the bullishness? And can you make money in this

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<v Speaker 1>emerging market?

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<v Speaker 1>So Ramesh from money mind today, it's five things to

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<v Speaker 1>know about investing in India. You'll be hearing from Chau

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<v Speaker 1>Chana Market strategist at Saxo Markets and James Chiu, Chief

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<v Speaker 1>Investment Officer Southeast Asia at HS BC. Global private banking

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<v Speaker 1>and wealth James. Let's start with you. Tell me just

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<v Speaker 1>what's behind this exuberance in the Indian market right now.

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<v Speaker 2>India is the fifth largest economy,

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<v Speaker 2>but increasingly India is also the fifth largest stock market

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<v Speaker 2>in the world. And that's really because in recent months,

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<v Speaker 2>we are seeing quite a bit of interest from global

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<v Speaker 2>investors to Indian market and there's good reason for it

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<v Speaker 2>because over the short term, we are seeing economic momentum

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<v Speaker 2>improving in India. The PM I is actually extremely strong

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<v Speaker 2>consumer spending is also picking up quite strongly because of digitization.

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<v Speaker 2>So the short term view is positive and there is

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<v Speaker 2>increasingly more and more interest into India. And also we

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<v Speaker 2>are actually bullish on India. Likewise, we think that investors

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<v Speaker 2>should actually think about India for their long term investing.

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<v Speaker 1>Charro what's propelling this bullishness? I mean, some are really

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<v Speaker 1>saying that geopolitics is playing in India's favor right

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<v Speaker 2>now. That's certainly one aspect of it where you know

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<v Speaker 2>us China tensions have prompted companies to look beyond

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<v Speaker 2>China and set up their manufacturing base elsewhere as well.

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<v Speaker 2>You know, China plus one strategy as we call it.

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<v Speaker 2>But along with that, you know, pandemic kind of exposed

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<v Speaker 2>how vulnerable some of the supply chains were. And a

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<v Speaker 2>lot of companies are actually now focusing on new shoring

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<v Speaker 2>and French shoring to kind of ensure a little bit

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<v Speaker 2>more resiliency in supply chains. So that is playing a

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<v Speaker 2>part as well. For example, Apple is a test case

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<v Speaker 2>for India where it is

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<v Speaker 2>moving a huge part of its manufacturing to India. And

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<v Speaker 2>if it is able to supply the kind of iphones,

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<v Speaker 2>it plans to deliver by 2025. I think a lot

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<v Speaker 2>more companies will get the impetus to also move their

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<v Speaker 2>operations to India. So that's one and in terms of

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<v Speaker 2>the market impact, it could be pretty significant for India

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<v Speaker 2>because as these manufacturing centers move out of China, we

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<v Speaker 2>could see

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<v Speaker 2>a further slowdown in China. And that's the structural transformation

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<v Speaker 2>that China is going through. And that again would prompt

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<v Speaker 2>a lot of investors to look for investments in emerging

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<v Speaker 2>markets that could bring the same kind of returns to

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<v Speaker 2>their portfolios as China did at one point of time,

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<v Speaker 1>James, what are for you, the biggest reasons for investors

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<v Speaker 1>to be interested in India on

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<v Speaker 2>technology. What we have seen is that the digital economy,

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<v Speaker 2>it's really a game changer. I mean, the pandemic has

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<v Speaker 2>made the world more digital and economy like India, largely informal,

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<v Speaker 2>largely rural benefits a lot from having everything being digital.

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<v Speaker 2>So buyers and sellers transactions are now digital. Uh that

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<v Speaker 2>actually means that if money can flow with less friction,

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<v Speaker 2>it also means consumption will increase. But also it will

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<v Speaker 2>set the stage for the next round of growth. With

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<v Speaker 2>this digital economy, with all this information that's captured

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<v Speaker 2>digitally, it will allow insurers, it will allow lenders to

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<v Speaker 2>provide services to consumers that were previously not reached in

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<v Speaker 2>that sense. So this is going to be very interesting

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<v Speaker 2>the digital economy. It's going to be fascinating to watch.

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<v Speaker 2>And the second part will be the rising income of India,

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<v Speaker 2>the middle class. Uh the population of India is now

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<v Speaker 2>the largest in the world 1.4 billion people. But I

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<v Speaker 2>think the dynamic is also of course very different.

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<v Speaker 2>They are much younger on average 10 years younger than

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<v Speaker 2>those in in in China. And also they live largely

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<v Speaker 2>in bigger families in rural areas. They will actually increase

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<v Speaker 2>their spending their incomes in the years ahead. So it's

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<v Speaker 2>very easy that the middle class of India is going

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<v Speaker 2>to double itself in the next 10 years. I think

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<v Speaker 2>that's something to watch out for. And clearly one of

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<v Speaker 2>the biggest economic locomotive that investors have to pay attention

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<v Speaker 2>to

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<v Speaker 1>Indian stock markets have reached fresh peaks in June. as

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<v Speaker 1>investors buy into the India growth story, economic momentum is

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<v Speaker 1>picking up and consumer spending too. Western tensions with China

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<v Speaker 1>are playing in India's favor as companies look to diversify

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<v Speaker 1>supply chains and set up new manufacturing base. Now within India,

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<v Speaker 1>a burgeoning middle class is spending more and their numbers

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<v Speaker 1>are expected to double at the same time. A strong

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<v Speaker 1>push for digitization is already boosting

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<v Speaker 1>spending by giving more people access to cash and to credit.

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<v Speaker 1>So tell us how does one get started investing in India?

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<v Speaker 1>And what sort of returns are we looking at?

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<v Speaker 2>There are various ways to implement it? You could do

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<v Speaker 2>it through uh ETF or you could do it through

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<v Speaker 2>uh actively managed fund. So there are various ways to

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<v Speaker 2>do it. But in terms of, let's say uh performance wise,

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<v Speaker 2>I mean, it's very hard to project what's performance in

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<v Speaker 2>the future. But if you look at the last five years,

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<v Speaker 2>if you are invested in India,

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<v Speaker 2>dollar terms, you will be up 70% compared to, let's

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<v Speaker 2>say if you invest in China, for example, over the

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<v Speaker 2>last five years, in dollar terms, you will be down 30%.

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<v Speaker 2>So that's the difference in terms of the trajectory that

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<v Speaker 2>has changed over the last five years. Indian markets, the

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<v Speaker 2>returns that they generate are extremely reflective of the growth

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<v Speaker 2>that Indian economy can generate. So the IMF is actually

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<v Speaker 2>expecting over 6% kind of GDP growth in India over

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<v Speaker 2>the next five years. And if you look at it

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<v Speaker 2>in terms of nominal growth

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<v Speaker 2>and adding inflation to it, it could be about 11

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<v Speaker 2>to 12% of nominal growth in India. And if you

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<v Speaker 2>are an active investor in India, you could easily assume

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<v Speaker 2>that kind of growth to translate into earnings growth of

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<v Speaker 2>about 11% for an active investor. It could also mean

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<v Speaker 2>growth of up to about 15%. The last two years.

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<v Speaker 2>We've seen India markets really outperforming emerging market indices. So

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<v Speaker 2>that has obviously led to its valuations being a little

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<v Speaker 2>bit expensive

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<v Speaker 2>regions are still justified. Given the long run potential that

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<v Speaker 2>India provides, it's very important to not just look at

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<v Speaker 2>the absolute return but also to how does India could

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<v Speaker 2>help in constructing a portfolio. Because essentially what we have

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<v Speaker 2>found is that in terms of correlation wise, the Indian

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<v Speaker 2>market has a lower correlation compared to other markets in

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<v Speaker 2>the emerging markets or even with the whole global portfolio.

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<v Speaker 2>So what it means is that if you add India

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<v Speaker 2>into the allocation, it does reduce your risk whilst

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<v Speaker 2>either keeping your returns intact or even increasing your returns.

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<v Speaker 2>So I think that's a very crucial element because a

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<v Speaker 2>lot of the companies uh in India that you invest

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<v Speaker 2>into are are geared towards its own local consumption, its

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<v Speaker 2>own local growth dynamics, which is actually very strong. So

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<v Speaker 2>I think that's why uh having an India location, I

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<v Speaker 2>think makes sense for long term investors. Are

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<v Speaker 1>there any sectors in particular? We should be looking at

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<v Speaker 2>if you look at some of the sectors which are

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<v Speaker 2>linked to these macro stories that we've been talking

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<v Speaker 2>about the consumer story, which is obviously strong because of demographics,

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<v Speaker 2>because of the rising middle class, you have a lot

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<v Speaker 2>of FMC G sectors, banking sector, which has the potential

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<v Speaker 2>to do well. If you look at the manufacturing story

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<v Speaker 2>that is gaining momentum there, again, you have manufacturing sectors

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<v Speaker 2>that could be quite interesting, there's infrastructure which will be

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<v Speaker 2>needed to support those manufacturing sectors as well. So logistics

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<v Speaker 2>could be quite interesting

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<v Speaker 2>and the whole digitization story which is actually improving financial

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<v Speaker 2>inclusion in India could also again bring the banking sector

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<v Speaker 2>in focus. So there's really a host of opportunities in

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<v Speaker 2>India at the moment. And

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<v Speaker 1>what sort of risks should investors be aware of before dipping?

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<v Speaker 1>Well,

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<v Speaker 2>there are risks as with all investments. Um One risk

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<v Speaker 2>of course is that Indian valuation in terms of equity

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<v Speaker 2>market is is fairly high compared to the other markets.

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<v Speaker 2>But there's good reason for it really because return on

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<v Speaker 2>equity is also higher 14 to 16% compared to the rest.

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<v Speaker 2>Uh But also uh it, it does have a volatility

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<v Speaker 2>as well. Uh Because recently, there's more and more retail investors,

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<v Speaker 2>especially in India buying into Indian. So that will create

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<v Speaker 2>quite a bit of short term exuberance from time to time.

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<v Speaker 2>But I think ultimately, it's very important that investors, when

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<v Speaker 2>they think about India, they think about long term investments,

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<v Speaker 2>5 to 7 years hold out through the entire business cycle.

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<v Speaker 2>I think of course, political and policy risks are something

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<v Speaker 2>that will be extremely key for investors to keep in mind,

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<v Speaker 2>India is a commodity importer as well, especially an oil

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<v Speaker 2>importer and any surge in oil prices could

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<v Speaker 2>be destabilizing for the Indian economy. So that's something investors

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<v Speaker 2>should keep in mind as well. And overall, let me see,

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<v Speaker 2>paralysis given that we will be entering the election phase

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<v Speaker 2>pretty soon in India. I think that's something that we

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<v Speaker 2>need to continue to watch as

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<v Speaker 1>well. Finally, I want to know what's your long term

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<v Speaker 1>outlook for the Indian economy? The

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<v Speaker 2>Indian economy is going to be a very exciting economy

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<v Speaker 2>in the next 5 to 10,

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<v Speaker 2>10 years, there will be a sort of a confluence

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<v Speaker 2>of two sectors, one the old economy and one the

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<v Speaker 2>new economy currently around 85% of India. India's economy is

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<v Speaker 2>still the old economy. The rest, the 15% of the

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<v Speaker 2>new economy is starting to grow, whether it's manufacturing, whether

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<v Speaker 2>it's renewable energy, whether it's high tech exports, that's starting

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<v Speaker 2>to kind of pick up in the next five years.

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<v Speaker 2>You're going to see that, that new economy coming much

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<v Speaker 2>and much more important to India. And if India can

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<v Speaker 2>make that whole transition, it's very easy that it could

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<v Speaker 2>actually double itself in the next seven or even 10 years.

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<v Speaker 2>If that whole new economy takes root, investing in any

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<v Speaker 2>emerging market is always a risky proposition. The high returns

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<v Speaker 2>that we generate are also underpinned by high risks. And

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<v Speaker 2>of course, India has its share of risks as well.

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<v Speaker 2>So it is going to be a bumpy ride, especially

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<v Speaker 2>given the fact that it's not a domestic story only anymore.

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<v Speaker 2>There is going to be a lot of interlink between

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<v Speaker 2>how global markets perform and given that we are entering

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<v Speaker 2>this phase of a global slowdown. Potentially that could also

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<v Speaker 2>play its part in the Indian market. Investing in India

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<v Speaker 2>is a game of patience and that's what investors should

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<v Speaker 2>really be aware about.

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<v Speaker 1>So investors are buying into the Indian growth story, propelling

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<v Speaker 1>India's stock market to record highs in June as economic

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<v Speaker 1>momentum and consumer spending pick up India is also benefiting

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<v Speaker 1>from geopolitics as countries look to diversify supply chains and

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<v Speaker 1>set up alternative manufacturing base to invest in India, consider

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<v Speaker 1>an ETF sectors to look out for include finance, manufacturing,

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<v Speaker 1>consumer goods and the green economy.

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<v Speaker 1>You can expect double digit returns, but it comes at

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<v Speaker 1>a price quite literally Indian stocks come at a premium.

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<v Speaker 1>But analysts say it's a worthy price to pay if

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<v Speaker 1>you can ride up the volatility that's expected with any

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<v Speaker 1>emerging market investment. Now, that's why it's important to be

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<v Speaker 1>able to hold your investments in India for the medium

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<v Speaker 1>to long term, especially as the country heads towards general

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<v Speaker 1>elections next year, which could result in some short term volatility. Well,

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<v Speaker 1>that's five things to know about investing in India.

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<v Speaker 1>You've been hearing from China Market strategist at Saxo Markets

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<v Speaker 1>and James Chiu, chief Investment Officer for Southeast Asia at

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<v Speaker 1>HS BC. Global Private banking and wealth Money Mind is

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<v Speaker 1>every Saturday 8:30 p.m. on Media Corp CN A. You

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<v Speaker 1>can also catch us on CN A dot Asia and

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<v Speaker 1>on youtube.