India Offers Investment Opportunities Amid Global Slowdown

Inflation, interest rates and recession fears are putting the brakes on the global economy, but that’s not stopping India. If it can maintain its current trajectory, India is set to become the fastest growing economy this fiscal year, according to a State Bank of India (SBI) research paper. The National Stock Exchange of India (NSE) is also holding its own compared to international counterparts as a strong investment cycle has helped buoy equities. Inflows from institutional investors are starting to gain ground back after international macro pressures saw mass outflows in the first half of 2022. So as momentum accelerates, how can you effectively navigate the emerging market to take advantage of India’s opportunities?

Key Takeaways

  • Despite the slowing of global growth, the Indian economy is on track to become the third largest in the world by 2029.
  • Macro and micro factors are creating opportunities for a range of investors to enter or expand positions in the Indian market which is posting a strong performance this year compared to Australia, the US and China as well as other developing nations.
  • The Indian share market is notoriously difficult for international investors to access. ETFs such as NDIA allow international investors to gain exposure to key shares on the index.

Growth potential in an emerging market

India’s emerging market is giving developed nations a run for their money and is pinned to surpass Germany and Japan to become the third largest economy in the world by 2029. In the first quarter of this fiscal year alone, its economy popped 13.5%. Looking ahead, SBI estimates for overall FY23 GDP growth are sitting between 6.7% to 7.7% – around 1.2% higher than the average growth rate as countries around the globe navigate tough monetary, labour and supply issues.

For the year to date, Indian equities have performed well relative to Australia and the US. It has also outperformed regional players such as China and other Asian emerging markets. As a result, Indian stocks may appear to be pricey compared to broader Asian and global markets. But why? It comes down to valuations reflecting the state each country’s economic situation.

In India’s case, it’s kicking off a fresh investment cycle. Housing, auto replacement and the Government’s Production Linked Scheme have created significant supports as the nation – along with the rest of the world – grapples with COVID-recovery efforts. Alongside progressive policy, there has been an injection of infrastructure spending which may have a multiplier effect on long-term economic growth. Mirae Asset forecast that earnings may also be on the up and improvements in return on equity are anticipated to grow 15% to 20% in the coming years. So, in a world where growth is constrained, India’s structural drivers go a long way in justifying its valuation premiums.

Outflows won’t stop outcomes

Emerging markets like India are influenced by currency and monetary moves from around the globe. This played out during the first half of the 2022 as a rising US dollar put pressure on flows and forex reserves. As a result, foreign investors withdrew almost 227,290 INR crores (US$30 billion) from India. Concern over rising commodity prices added fuel to the outflow fire, but foreign investment has been making a comeback since July as prices have started to cool. Despite the aggressive selling from foreign investors, Indian equity markets remained resilient thanks to strong net buying from domestic investors who were previously underexposed.

Now, what should you expect for the remainder of the calendar year? India’s exports are likely to be hit by the global economic slowdown, however markets have already largely taken this into account. Elsewhere, China has seen a slowdown due to lingering COVID-19 disruptions and lockdowns, while the Russia-Ukraine War and consequent energy crisis has exacerbated existing issues in the Eurozone. Stateside, inflation and tightening Fed policy are overshadowing the market – leading to ongoing volatility.

Overcoming barriers to entry via ETFs

As gung-ho as you may be to invest in India, everyday Australians cannot directly buy or sell NSE-listed shares (unless you have a spare $50 million lying around and can access a sub-account through an authorised institution).  In fact, even Indian-based retail investors must be represented by a registered stockbroker to access the market.

ETFs are a way to circumvent these complications. There are products available on Australian exchanges which give you exposure to the NIFTY 50 – a weighted index of the top 50 companies listed on the NSE. Effectively exposing your portfolio to more than 60% of India’s stock market including its biggest, bluechip companies such as Reliance Industries, HDFC Bank and Hindustan Unilever without all the fuss.

Related Funds

NDIA: For investors seeking to gain exposure to the emerging Indian economy through its premier benchmark, the NSE Nifty 50 Index, the Global X India Nifty 50 ETF (NDIA) offers a solution.

Click the fund name above to view the fund’s current holdings. Holdings are subject to change. Current and future holdings are subject to risk.