Log inWhy India?
We added the Stewart Indian Subcontinent fund to our portfolios recently having had a period without direct Indian fund exposure. In recent times, we have relied on global emerging market funds covering the region and deciding how big an allocation to make to the country.
We feel that India warrants a bigger part of our portfolios as reform under Prime Minister Narendra Modi has matured, spending on infrastructure has increased and the opportunity to benefit from reform is seemingly upon us.
In the early part of 2018, the Indian stock market had fallen relative to other emerging markets, but the market has since stabilised and below we have highlighted a few examples of the opportunity India presents, in spite of the late 2018/early 2019 elections which are due. India is the largest democracy amongst the emerging markets and whilst Modi may, or may not, be re-elected, the groundwork is in place to support the continued rise of the Indian growth story.
Take banking as an example. 65% of the Indian banking sector is state owned. It is poorly run and inefficient, which offers an opportunity for private banks in India to increase market share and compare favourably with their state-owned competitors. The Stewart fund owns Kotak Mahindra Bank, an example of a privately-owned banking entity which is enjoying significant growth.
Privately run financial and technology companies in India are leading the way in the Government reform for every Indian to be biometrically identified with an ID number, which is then linked to their businesses and bank accounts. As the move to online and smartphones continues apace and with the database of information gleaned from the biometric reform, the banking sector in India has an opportunity to entirely circumvent traditional finance methods. According to Neptune, there are 54m small businesses in India without access to credit, a market equivalent to $120bn waiting to be accessed.
At present Indian freight and the public all travel using the same railway lines. This causes all sorts of delays and problems when trying to get from A to B and hinders economic efficiency. Currently, the share of rail in freight traffic in India is only 28% versus and average of 50% globally. By 2020, India will open a separate railway line to split out freight from public transport which will lead to vastly more efficient transport and an expected increase in freight traffic of 35% within its first year. In turn this will also lead to India being in a position to increase its container port traffic from an at present woefully low level. Stocks such as Container Corporation of India are directly involved in this development.
India is a country which under Modi has undergone tremendous reform. It hasn’t always been popular and the nature of long term reform can often result in short term pain, but India has been through much of this pain now. As Modi’s tax reforms are now implemented and taking effect, the pain of change has passed, leaving an opportunity to kick on with infrastructure, efficiency and productivity in a country with far higher levels of corporate governance than much of the emerging world.