A year on from its economy surpassing China as the world’s fastest growing, India has been heralded as one of the shining lights for growth in emerging markets in recent years.
This success has been propelled by the reform programme initiated by prime minister Narendra Modi. Since his huge electoral win in 2014, he has aggressively pursued a series of reforms, the most recent being the demonetisation of large currency notes in November last year.
Heading into the last two years of Modi’s term, Jonathan Schiessl, CIO and lead manager of the Ashburton India Equity Opportunities fund, remains positive on the outlook for the equity market.
“We believe earnings have finally bottomed and the non-performing loan issue that has been plaguing India’s banking system is finally being properly tackled,” he says.
So what parts of the Indian market are Schiessl and other India fund managers looking to tap into?
“India remains a domestic story, driven by long-term structural drivers of demographics and urbanisation,” says Schiessl. “These factors lead us to primarily focus on Indian-listed companies tapped into domestic demand.”
As such, the manager says while he is adopting overweight positions in consumer-focused companies across a variety of areas, one sector of particular focus is Indian autos.
“We also have an overweight to the industrials sector, which is playing into India’s efforts to roll out much needed infrastructure.”
Jorry Rask Nøddekær, manager of the Nordea 1 – Emerging Stars Equity fund, meanwhile, is very bullish on financials.
“There are a number of positive fundamental drivers of steady income growth for the banking sector, with the government’s efforts to boost the formal economy likely to significantly boost penetration,” he says.
“However, it is not only a top-line story, as these institutions are becoming better at monetising clients through the cross selling of mortgages, insurance and asset management products. IT improvements are also boosting bank return profiles.”
As a result, Nøddekær says the fund recently bought into the financial conglomerate HDFC, a powerful mortgage operator with a major stake in HDFC Bank, after its share price came under pressure owing to the demonetisation announcement.
He says: “We have liked the company for a long time and used this as an attractive entry point. Life insurance, a sector we like on a standalone basis, is also another appealing aspect of HDFC – with its life arm poised to merge with rival MAX. We believe it will create an incredibly strong insurance franchise in India.”
