Darius McDermott: Three India funds to watch as election looms
MSCI India has returned 5.2% year to date as Modi attempts to stay in power
The election itself takes place over several stages between 11 April 11 and 23 May and gives up to 900 million people the opportunity to vote on their new leader. At the time of writing, it looks likely that current prime minister Narendra Modi will stay in power, although he may need allies to reach a majority of 272 seats to form a government.
Many have waxed lyrical on the benefits of investing in India – supported by a population of 1.37 billion, a lot of young people and a growing middle class. Earlier this year, the International Monetary Fund projected India to be the fastest growing economy in 2019 and 2020 with growth of 7.5% and 7.7% respectively.
Although Modi retaining power is now likely, that has not always been the case – his popularity dipped at the end of last year and the start of this, a sentiment which has not been friendly to markets in India. The MSCI India has returned 5.2% year to date – having been down as much as 7.2% in mid-February – but is still some way behind the MSCI Emerging Markets index, which has returned 10.35%, according to FE data.
The recent rally has been due to the positive momentum Modi has created in the lead up to the elections. This has included more support for the rural areas such as farmers, increased tax rebates and exemptions for low- and middle-class earners as well as greater support for the housing sector.
Additional benefits have also come from the appointment of a new central bank governor (Shaktikanta Das), who has already cut interest rates on two occasions this year to alleviate liquidity issues. The reaction to the ongoing conflict with Pakistan has also boosted sentiment, while the fall in oil prices towards the end of 2018 had eased currency and inflation pressures – though prices have increased since.
These measures, coupled with some of the longer-term trends – such as infrastructure and the changing demands of the rural population – paint a picture of optimism, but it is it an opportunity?
Alquity head of Asia and India fund manager Mike Sell believes the outcome of the general election is not priced into the market despite a strong chance of Modi being successful. On a recent call he cited the potential macro-tailwinds and the under-appreciated strength of the rural economy as opportunities.
If you look at Indian equity valuations, I believe they are slightly expensive but not in comparison to other points in the past. However, we do need to see some earnings come through to support this. A lot will depend on the next few weeks and whether Modi gets a full majority to work with – which may dictate the strength of any post-election rally. Further rate cuts are also likely to improve the outlook.
I’ve picked three Elite Rated funds which either focus solely on India or have exposure to the country. Click through the slides above to find out what they are.