Fund managers have warned investors not to be complacent about their exposure to India after a remarkable run during president Narendra Modi’s first year in office.
From Mr Modi’s election on May 26 last year to last week, the S&P BSE 500, an index of India’s top 500 stocks, had risen more than 17 per cent in rupee terms, according to data from FE Analytics.
But the shine has come off the market more recently. Since March it has fallen 2.4 per cent, prompting some to urge caution on the likelihood of another major run in the short term.
Roderick Snell, manager of the £332m Baillie Gifford Pacific fund, said that while he was positive on the country for now, “the jury is still out on long-term structural reforms”.
He said: “Mr Modi has done a reasonable job, but India is not a country set up for seismic changes.
“The upper house – which is a bit like our House of Lords – makes it difficult for him to pass reforms.
“There are a number of bills and reforms that have not happened, like the Goods and Services Tax Bill and the Land Acquisition Bill, which were important for development.”
The latter bill was intended to pave the way for several infrastructure projects, but the purchase of land by the government has been slow.
These worries have led Mr Snell to reduce his weighting in the country by roughly 6 percentage points this year alone.
This is a significant move for the portfolio, given that India was the largest country exposure at the end of March. It is now the second largest at 21.2 per cent.
The manager acknowledged that India had some “very good companies” and that the macroeconomic situation had “improved dramatically”, but said he was focusing specifically on certain areas, including banks.
Ross Teverson, manager of the Jupiter Global Emerging Markets fund, thought some in the market had “unrealistic expectations” about the speed of Mr Modi’s pledged reforms.
Mr Teverson has 12.9 per cent of his portfolio exposed to India, making it the third-largest country exposure.
But he said he was likely to hold the weighting where it was, since investors would have to wait for more efficient governance by the country’s leaders to emerge.
Jorry Rask Nøddekær, manager of the Nordea 1 – Emerging Stars Equity fund, said he thought the markets had pulled back because of “fears about the pace of reforms”.
But he said for those with a long-term investment horizon, any further fall in the Indian stockmarket could “open up one of the world’s most compelling multi-year opportunities”.
