Speaker 1: While it might be a picture of economic gloom in
Speaker 1: most parts of the world, the same can't be said
Speaker 1: for India right now. It's home to one of the
Speaker 1: world's fastest growing economies with the IMF predicting growth of
Speaker 1: nearly 6% this year. Investments are booming and the country's
Speaker 1: two main stock indexes hit record highs in June. What's
Speaker 1: behind the bullishness? And can you make money in this
Speaker 1: emerging market?
Speaker 1: So Ramesh from money mind today, it's five things to
Speaker 1: know about investing in India. You'll be hearing from Chau
Speaker 1: Chana Market strategist at Saxo Markets and James Chiu, Chief
Speaker 1: Investment Officer Southeast Asia at HS BC. Global private banking
Speaker 1: and wealth James. Let's start with you. Tell me just
Speaker 1: what's behind this exuberance in the Indian market right now.
Speaker 2: India is the fifth largest economy,
Speaker 2: but increasingly India is also the fifth largest stock market
Speaker 2: in the world. And that's really because in recent months,
Speaker 2: we are seeing quite a bit of interest from global
Speaker 2: investors to Indian market and there's good reason for it
Speaker 2: because over the short term, we are seeing economic momentum
Speaker 2: improving in India. The PM I is actually extremely strong
Speaker 2: consumer spending is also picking up quite strongly because of digitization.
Speaker 2: So the short term view is positive and there is
Speaker 2: increasingly more and more interest into India. And also we
Speaker 2: are actually bullish on India. Likewise, we think that investors
Speaker 2: should actually think about India for their long term investing.
Speaker 1: Charro what's propelling this bullishness? I mean, some are really
Speaker 1: saying that geopolitics is playing in India's favor right
Speaker 2: now. That's certainly one aspect of it where you know
Speaker 2: us China tensions have prompted companies to look beyond
Speaker 2: China and set up their manufacturing base elsewhere as well.
Speaker 2: You know, China plus one strategy as we call it.
Speaker 2: But along with that, you know, pandemic kind of exposed
Speaker 2: how vulnerable some of the supply chains were. And a
Speaker 2: lot of companies are actually now focusing on new shoring
Speaker 2: and French shoring to kind of ensure a little bit
Speaker 2: more resiliency in supply chains. So that is playing a
Speaker 2: part as well. For example, Apple is a test case
Speaker 2: for India where it is
Speaker 2: moving a huge part of its manufacturing to India. And
Speaker 2: if it is able to supply the kind of iphones,
Speaker 2: it plans to deliver by 2025. I think a lot
Speaker 2: more companies will get the impetus to also move their
Speaker 2: operations to India. So that's one and in terms of
Speaker 2: the market impact, it could be pretty significant for India
Speaker 2: because as these manufacturing centers move out of China, we
Speaker 2: could see
Speaker 2: a further slowdown in China. And that's the structural transformation
Speaker 2: that China is going through. And that again would prompt
Speaker 2: a lot of investors to look for investments in emerging
Speaker 2: markets that could bring the same kind of returns to
Speaker 2: their portfolios as China did at one point of time,
Speaker 1: James, what are for you, the biggest reasons for investors
Speaker 1: to be interested in India on
Speaker 2: technology. What we have seen is that the digital economy,
Speaker 2: it's really a game changer. I mean, the pandemic has
Speaker 2: made the world more digital and economy like India, largely informal,
Speaker 2: largely rural benefits a lot from having everything being digital.
Speaker 2: So buyers and sellers transactions are now digital. Uh that
Speaker 2: actually means that if money can flow with less friction,
Speaker 2: it also means consumption will increase. But also it will
Speaker 2: set the stage for the next round of growth. With
Speaker 2: this digital economy, with all this information that's captured
Speaker 2: digitally, it will allow insurers, it will allow lenders to
Speaker 2: provide services to consumers that were previously not reached in
Speaker 2: that sense. So this is going to be very interesting
Speaker 2: the digital economy. It's going to be fascinating to watch.
Speaker 2: And the second part will be the rising income of India,
Speaker 2: the middle class. Uh the population of India is now
Speaker 2: the largest in the world 1.4 billion people. But I
Speaker 2: think the dynamic is also of course very different.
Speaker 2: They are much younger on average 10 years younger than
Speaker 2: those in in in China. And also they live largely
Speaker 2: in bigger families in rural areas. They will actually increase
Speaker 2: their spending their incomes in the years ahead. So it's
Speaker 2: very easy that the middle class of India is going
Speaker 2: to double itself in the next 10 years. I think
Speaker 2: that's something to watch out for. And clearly one of
Speaker 2: the biggest economic locomotive that investors have to pay attention
Speaker 2: to
Speaker 1: Indian stock markets have reached fresh peaks in June. as
Speaker 1: investors buy into the India growth story, economic momentum is
Speaker 1: picking up and consumer spending too. Western tensions with China
Speaker 1: are playing in India's favor as companies look to diversify
Speaker 1: supply chains and set up new manufacturing base. Now within India,
Speaker 1: a burgeoning middle class is spending more and their numbers
Speaker 1: are expected to double at the same time. A strong
Speaker 1: push for digitization is already boosting
Speaker 1: spending by giving more people access to cash and to credit.
Speaker 1: So tell us how does one get started investing in India?
Speaker 1: And what sort of returns are we looking at?
Speaker 2: There are various ways to implement it? You could do
Speaker 2: it through uh ETF or you could do it through
Speaker 2: uh actively managed fund. So there are various ways to
Speaker 2: do it. But in terms of, let's say uh performance wise,
Speaker 2: I mean, it's very hard to project what's performance in
Speaker 2: the future. But if you look at the last five years,
Speaker 2: if you are invested in India,
Speaker 2: dollar terms, you will be up 70% compared to, let's
Speaker 2: say if you invest in China, for example, over the
Speaker 2: last five years, in dollar terms, you will be down 30%.
Speaker 2: So that's the difference in terms of the trajectory that
Speaker 2: has changed over the last five years. Indian markets, the
Speaker 2: returns that they generate are extremely reflective of the growth
Speaker 2: that Indian economy can generate. So the IMF is actually
Speaker 2: expecting over 6% kind of GDP growth in India over
Speaker 2: the next five years. And if you look at it
Speaker 2: in terms of nominal growth
Speaker 2: and adding inflation to it, it could be about 11
Speaker 2: to 12% of nominal growth in India. And if you
Speaker 2: are an active investor in India, you could easily assume
Speaker 2: that kind of growth to translate into earnings growth of
Speaker 2: about 11% for an active investor. It could also mean
Speaker 2: growth of up to about 15%. The last two years.
Speaker 2: We've seen India markets really outperforming emerging market indices. So
Speaker 2: that has obviously led to its valuations being a little
Speaker 2: bit expensive
Speaker 2: regions are still justified. Given the long run potential that
Speaker 2: India provides, it's very important to not just look at
Speaker 2: the absolute return but also to how does India could
Speaker 2: help in constructing a portfolio. Because essentially what we have
Speaker 2: found is that in terms of correlation wise, the Indian
Speaker 2: market has a lower correlation compared to other markets in
Speaker 2: the emerging markets or even with the whole global portfolio.
Speaker 2: So what it means is that if you add India
Speaker 2: into the allocation, it does reduce your risk whilst
Speaker 2: either keeping your returns intact or even increasing your returns.
Speaker 2: So I think that's a very crucial element because a
Speaker 2: lot of the companies uh in India that you invest
Speaker 2: into are are geared towards its own local consumption, its
Speaker 2: own local growth dynamics, which is actually very strong. So
Speaker 2: I think that's why uh having an India location, I
Speaker 2: think makes sense for long term investors. Are
Speaker 1: there any sectors in particular? We should be looking at
Speaker 2: if you look at some of the sectors which are
Speaker 2: linked to these macro stories that we've been talking
Speaker 2: about the consumer story, which is obviously strong because of demographics,
Speaker 2: because of the rising middle class, you have a lot
Speaker 2: of FMC G sectors, banking sector, which has the potential
Speaker 2: to do well. If you look at the manufacturing story
Speaker 2: that is gaining momentum there, again, you have manufacturing sectors
Speaker 2: that could be quite interesting, there's infrastructure which will be
Speaker 2: needed to support those manufacturing sectors as well. So logistics
Speaker 2: could be quite interesting
Speaker 2: and the whole digitization story which is actually improving financial
Speaker 2: inclusion in India could also again bring the banking sector
Speaker 2: in focus. So there's really a host of opportunities in
Speaker 2: India at the moment. And
Speaker 1: what sort of risks should investors be aware of before dipping?
Speaker 1: Well,
Speaker 2: there are risks as with all investments. Um One risk
Speaker 2: of course is that Indian valuation in terms of equity
Speaker 2: market is is fairly high compared to the other markets.
Speaker 2: But there's good reason for it really because return on
Speaker 2: equity is also higher 14 to 16% compared to the rest.
Speaker 2: Uh But also uh it, it does have a volatility
Speaker 2: as well. Uh Because recently, there's more and more retail investors,
Speaker 2: especially in India buying into Indian. So that will create
Speaker 2: quite a bit of short term exuberance from time to time.
Speaker 2: But I think ultimately, it's very important that investors, when
Speaker 2: they think about India, they think about long term investments,
Speaker 2: 5 to 7 years hold out through the entire business cycle.
Speaker 2: I think of course, political and policy risks are something
Speaker 2: that will be extremely key for investors to keep in mind,
Speaker 2: India is a commodity importer as well, especially an oil
Speaker 2: importer and any surge in oil prices could
Speaker 2: be destabilizing for the Indian economy. So that's something investors
Speaker 2: should keep in mind as well. And overall, let me see,
Speaker 2: paralysis given that we will be entering the election phase
Speaker 2: pretty soon in India. I think that's something that we
Speaker 2: need to continue to watch as
Speaker 1: well. Finally, I want to know what's your long term
Speaker 1: outlook for the Indian economy? The
Speaker 2: Indian economy is going to be a very exciting economy
Speaker 2: in the next 5 to 10,
Speaker 2: 10 years, there will be a sort of a confluence
Speaker 2: of two sectors, one the old economy and one the
Speaker 2: new economy currently around 85% of India. India's economy is
Speaker 2: still the old economy. The rest, the 15% of the
Speaker 2: new economy is starting to grow, whether it's manufacturing, whether
Speaker 2: it's renewable energy, whether it's high tech exports, that's starting
Speaker 2: to kind of pick up in the next five years.
Speaker 2: You're going to see that, that new economy coming much
Speaker 2: and much more important to India. And if India can
Speaker 2: make that whole transition, it's very easy that it could
Speaker 2: actually double itself in the next seven or even 10 years.
Speaker 2: If that whole new economy takes root, investing in any
Speaker 2: emerging market is always a risky proposition. The high returns
Speaker 2: that we generate are also underpinned by high risks. And
Speaker 2: of course, India has its share of risks as well.
Speaker 2: So it is going to be a bumpy ride, especially
Speaker 2: given the fact that it's not a domestic story only anymore.
Speaker 2: There is going to be a lot of interlink between
Speaker 2: how global markets perform and given that we are entering
Speaker 2: this phase of a global slowdown. Potentially that could also
Speaker 2: play its part in the Indian market. Investing in India
Speaker 2: is a game of patience and that's what investors should
Speaker 2: really be aware about.
Speaker 1: So investors are buying into the Indian growth story, propelling
Speaker 1: India's stock market to record highs in June as economic
Speaker 1: momentum and consumer spending pick up India is also benefiting
Speaker 1: from geopolitics as countries look to diversify supply chains and
Speaker 1: set up alternative manufacturing base to invest in India, consider
Speaker 1: an ETF sectors to look out for include finance, manufacturing,
Speaker 1: consumer goods and the green economy.
Speaker 1: You can expect double digit returns, but it comes at
Speaker 1: a price quite literally Indian stocks come at a premium.
Speaker 1: But analysts say it's a worthy price to pay if
Speaker 1: you can ride up the volatility that's expected with any
Speaker 1: emerging market investment. Now, that's why it's important to be
Speaker 1: able to hold your investments in India for the medium
Speaker 1: to long term, especially as the country heads towards general
Speaker 1: elections next year, which could result in some short term volatility. Well,
Speaker 1: that's five things to know about investing in India.
Speaker 1: You've been hearing from China Market strategist at Saxo Markets
Speaker 1: and James Chiu, chief Investment Officer for Southeast Asia at
Speaker 1: HS BC. Global Private banking and wealth Money Mind is
Speaker 1: every Saturday 8:30 p.m. on Media Corp CN A. You
Speaker 1: can also catch us on CN A dot Asia and
Speaker 1: on youtube.