Ayesha Akbhar, portfolio manager at Fidelity Multi Asset, says investors have gone cold on India in recent months as its macroeconomic situation is not as strong as it could be.
Akbhar says: “Twin deficits have gone up, currency has gone down, inflation is on the rise (prompting the Reserve Bank of India to raise rates in June, and with the potential to pick up again next year). All of these dynamics have the potential to weigh on corporate earnings.”
Even Jupiter India, an adviser favourite in 2017, has suffered outflows. It lost £18.7m between May and June this year, while during the same period last year, it raked in £128m.
Indian equities net sales
Source: Morningstar Direct
‘An elephant that’s starting to run’
Discussing India’s economic status in an interview, Prime Minister Narendra Modi said: “We all know the condition of the economy that we inherited from the previous government. Double-digit inflation, high revenue deficit, high fiscal deficit, a poor health of banking system, stalled projects, thus overall a weak economy.
“We immediately took effective steps to navigate the economy back to the path of reforms.
“The economy is growing at a robust 7.5% plus, all macro indicators are positive, the foreign reserves are well over US $400bn. Our economy is being termed as an elephant that’s starting to run. I believe that we are running on the right path.”
Xiaoyu Liu, emerging market equities fund manager at Aviva Investors, who has an overweight position in India and has increased since last year, argues that India is an attractive equity market, where there are several good companies offering long-term growth potential.
Likewise, Rajendra Nair, manager of the JPMorgan Indian Investment Trust, says he is confident that a gradual recovery is underway, which will be backed by a cyclical recovery in earnings.
He says: “India’s relatively robust showing in June, even as risk assets elsewhere sold off, may be an encouraging sign that investors are looking through the headlines to the potential for an overdue earnings recovery.”
David Cornell, manager of the India Capital Growth Fund, says the launch of Ikea’s first Indian store in Hyderabad w as a positive move.
“Not only as it demonstrates Ikea’s view of the opportunity that exists in India, but also because for many years they were reluctant to enter the country despite the potential. This attitude has changed more recently, largely as a consequence of Modi’s reform driven initiatives.”
Positioning for a US-China trade war
Relative to other emerging markets, managers play down the affect of a US-China trade war on India.
Cornell says: “India is a predominantly domestic facing economy with relatively lower exposure to international trade disputes. It will be a defensive bet in this regard.”
Meanwhile, Akbhar says: “Ultimately, I think it’s going to be important for investors over the coming months to consider India in the context of their EM holdings overall – thinking about the role these assets can play in a portfolio in relative terms, rather than being purely positive or negative on the country on an absolute basis.
“Indeed, I think India has the potential to perform well versus other parts of the EM complex (particularly as talk of US-China trade wars continues to impact sentiment on EM overall), but it’s hard to make a strongly compelling case for India in absolute terms.”
She adds that while India could be impacted by the trade disputes, but relative to other emerging markets it’s unlikely to suffer the full force.
“For now, Trump’s eyes are not on India.”