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The rapid upswing of India’s equity market continues to offer reasons for optimism. Experts are optimistic due to stable macro-economic numbers, improvement in vaccination rates, and a demand normalization. The sixth-largest economy in the world is expected to enter a period of sturdy growth. As per the latest figures, the growth in the gross domestic product (GDP) during the financial year (FY) 2021-22 is estimated at 9.2%, compared to the contraction of 7.3% in the previous fiscal (2020-21), according to the National Statistical Office (NSO).
Last year’s GDP growth was backed by ‘a year of robust manufacturing and services sector demand, supported by heightened vaccination rates,’ as per Lazard Asset Management’s Outlook on Emerging Markets.
Looking ahead to 2022, “the growth forecasts remain strong with projections coming in at record levels,” commented the asset manager. The International Monetary Fund (IMF) projected 8.5% growth for India this year, while many other financial institutions have projected more than 9%.
In the meanwhile, the country’s stock market has benefited from significant inflows both from institutional investors and retail buyers, pushing the MSCI India Index – which measures the performance of the large and mid-cap segments of the Indian market – over 20% higher in 2021. The EM portfolio managers of Lazard have kept their faith in Indian equities for 2022, given the ongoing efforts at economic reforms. “This makes the market an interesting proposition for long-term investors.”
What is driving India’s Equity market?
As a result of the current macroeconomic environment, Mirae Asset Global Investments has also kept a positive view on India.
“Despite India undergoing one of the most severe Covid-19 outbreaks, Indian equities delivered some of the strongest returns in the region in 2021,” according to Mirae Asset’s Chief Investment Officer Rahul Chadha. He further anticipates that vaccination rates in India will approach critical mass by early 2022, and recovery to gather further strength at this time.
According to Chadha, Indian companies have benefited from the structural reforms in India. “The government demonstrated a measured response concerning fiscal stimulus last year and instead focused on extending its Production Linked Incentive (PLI) scheme to promote domestic manufacturing. This prudence has proved to be the right move, and its success is now manifesting in the form of substantial foreign direct investment (FDI) flows and job creation,” Chadha said.
As per Mirae’s latest Emerging Markets Outlook, annual FDI inflows to India continued to grow at a significant rate, from merely around $10 bn in 2005 to $60 bn in 2016 and nearly $80 bn by 2020.
Furthermore, India has set a target to achieve net-zero emissions by 2070 — the first time the country has made such a pledge. Experts believe that this promise is a step in the right direction, as it will help the government to balance its climate goals while pursuing economic growth.
Sector-wise, India’s internet sector has witnessed the best period, backed by Covid-19 disruptions throughout 2020-21 according to Mirae. They forecast long-term opportunity in the sector. “We see exciting opportunities in the robust pipeline of Indian technology initial public offering (IPO), especially within key internet verticals such as fintech, food delivery, and e-commerce,” Chadha added.
“India has one of the world’s youngest populations,” the CIO from Mirae further stated, adding that the country’s large working population will provide a boost to economic growth in the future decades. Additionally, India’s rising aspirational consumer class will likely lead to sustained growth in discretionary consumption.
“As urbanization rates continue to rise along with strong wage growth, we believe India’s rising aspirational consumer class will likely lead to sustained growth in discretionary consumption,” said Chadha.
The asset management house already observed the start of this trend in 2021, with ‘new housing registrations in Mumbai reaching a 10-year high in October,’ indicating a recovering market and likely demand for other durable consumer goods. “Housing affordability, which has consistently improved since 2013, has also supported this trend.”
India vs. China Equity – “biggest story of 2021″
The Lazard EM team further noted that the Indian markets were treated as a haven by investors last year, in the wake of the sell-down in the Chinese market. “Investors were particularly enthusiastic about using Indian tech stocks to fill a void left by the Chinese tech giants getting battered by regulation.”
While it’s uncertain how long this trade could continue, the Lazard team continues to be positive for India. They further explained that the competition to buy early-stage internet business stakes has pushed up values significantly for the country. They also added that the bullish Indian market has also cooled slightly, following poor first public offering by the Indian multinational technology firm Paytm.
According to Robert J. Horrocks, Chief Investment Officer at Matthews Asia, the gap between the performance of India and China was one of the biggest stories of 2021.
“Currently the difference in the 12-month performance of a broad index of India and one of China is about forty percentage points,” Horrocks wrote in a recent outlook. This was backed by the excellent performance of Indian companies,” a remarkable bounce-back in earnings from the trough of the pandemic.
“We believe India can provide investors with a high-growth allocation in their portfolios particularly at a time when China is working out its regulatory issues and weathering a growth slump,” wrote Matthews Asia Portfolio Manager Peeyush Mittal.
He sees a strong underlying cyclical recovery in progress for India which gives reasons to be confident. “The key for investors is to be on the right side of India’s changing economy, to look for the long-term growth opportunities at reasonable valuations.”
