Investment companies for India
David Prosser on why it could be time for trusts investing in India to shine.
A quick quiz question for you: which country is the world’s most populous? For decades, the answer, as almost everyone knew, was China. In 2023, however, that changed, with the population of India exceeding China’s for the first time.
This feels like a significant moment. It’s not simply that there are now more people in India than China, striking though that is; it’s also that the economic landscape is shifting. For so long, China has been the world’s economic growth engine; now, however, it is faltering, and India is powering ahead.
The latest projections from the International Monetary Fund, published earlier this week, underline the point. The IMF expects India’s economy to grow by 6.5% in both 2024 and 2025, compared to its projections of 4.6% and 4.1% for China. And this isn’t a short-term aberration. Goldman Sachs has predicted that India will consistently deliver more growth than China over the years to 2050, enabling it to become the world’s second biggest economy by then. China will still be the world’s largest economy in 2050, Goldman expects, but India will close the gap.
“Goldman Sachs has predicted that India will consistently deliver more growth than China over the years to 2050, enabling it to become the world’s second biggest economy by then. China will still be the world’s largest economy in 2050, Goldman expects, but India will close the gap.”
This changing of the guard has already begun to translate into stock market performance. Over the five years to the end of last year, India’s market was up by more than 60%; investors in Chinese shares over the same period actually lost money. It has been quite the turnaround.
None of which is to suggest India is a sure thing. There are all sorts of potential headwinds to come. Not least, an election is due this Spring and while Narendra Modi’s government is currently expected to comfortably retain power, political uncertainty is on the rise. It is also fair to say that India’s transition to a modern global economy is far from complete. Plus, of course, there’s the question of whether Indian shares are now overvalued after such a strong run.
Nevertheless, for investors looking for long-term exposure to a global portfolio of equities, India increasingly feels like an important piece of the jigsaw. The question then becomes how best to pursue the opportunity.
Certainly, investors in the UK will want the services of a professional fund manager with deep-seated specialist expertise in India. This is a difficult market to navigate with all sorts of local nuances.
In practice, that means choosing a collective fund that offers exposure to Indian equities. There are around 25 open-ended funds in the UK that provide this exposure, along with four investment companies.
There is no right answer here, but investment companies do have certain advantages when it comes to investing in developing markets. Most importantly, their structure is better suited to coping with volatility and sudden shifts in sentiment. With a fixed pool of capital to invest, an investment company manager does not have to deal with inflows and outflows as investors move in and out of the fund. In a market such as India, where stocks can sometimes be illiquid and unpredictable, that is particularly useful.
In several cases, the Indian-focused investment companies are among the best performers of all investment companies over the past five years. In part that reflects the strength of the Indian market, but it also speaks to the importance of specialist expertise in this area.