India is well positioned to benefit from foreign companies seeking to reduce over-reliance on China as a manufacturing centre, James Burns lead manager of the Evelyn Partners active managed portfolio service has said.
One example of this is Apple, which is seeking to move iPhone production to India.
Burns noted that India’s economy had been growing rapidly in recent years, aided by meaningful structural reforms introduced by Narendra Modi’s ruling Hindu nationalist BJP government and significant infrastructure investment.
With Modi the clear frontrunner to win a third five-year term as prime minister, this should result in the "longest period of stable government since independence and investors will be hoping for a continuation of business -friendly policies".
Burns added: “For investors, the case for India is compelling on both a longer and medium-term view. Under Modi, investment in infrastructure has increased and incentives have been provided to attract electronics manufacturers to help India compete on the international market.
“But India is much more than a low-cost manufacturing story, the growth of domestic consumption is a really exciting theme, powered by a fast-growing young population and rapidly expanding middle class – approximately a third of the population is estimated to be between 20 and 33 years. This will help drive economic growth for decades.
“According to analysis published by research company BMI, the country’s consumer market will become the third largest in the world by 2027, fuelled by rising numbers of middle to high-income households.”
A note published earlier this week by Matthews Asia stated the performance of India’s stock markets reflected its economic growth.
Indian equities have been the best-performing market for the past three years, and over five and 10 years they have been on the coat-tails of US equities. Over all three periods, India’s equity market has outperformed China and emerging markets generally, and its market capitalisation is the fourth-biggest in the world.
Until relatively recently, India’s economy was powered largely by consumption in the form of demand for basic consumer staples, and by agriculture and industries ranging from health care to outsourcing and professional services like IT, legal, accounting and consulting.
This posture provided little scope for India to develop its own manufacturing and industrial capability; regulation and red tape were added disincentives.
Peeyush Mittal, a portfolio manager at Matthews Asia, said: “The bottom line for investors was that India couldn’t be ignored but at the same time its long-term growth path was hard to predict. That’s changed. Over the past decade, India’s consumption and production engines have been transitioning and expanding.
“The forces of demand have been strengthened by big increases in government spending, particularly on infrastructure.
“Over the past 10 years, the government has spent around $800bn (£633bn) on bridges, roads and rail and other construction projects, averaging around 3.6 per cent of GDP, and under prime minister Modi – provided he is re-elected this year – that cadence looks likely to continue."
ima.jacksonobot@ft.com
