No matter that the Indian stock market is as expensive as New York’s and about twice as expensive as London, British retail investors are ploughing their money into the country. The £1.6 billion Jupiter India fund ranks among the most popular funds with all three leading stockbrokers. Among customers of Interactive Investor, it was the third most popular fund in June, above even Fundsmith Equity, managed by Terry Smith, the renowned and much-followed investor.
Yet this rush into Indian stocks comes amid a volatile period on the subcontinent. It had its worst performance in four years last month, dragged down by a general election that placed Narendra Modi, the prime minister, in power again, although the vote denied him an anticipated majority in the lower house of parliament. The shock caused the Nifty 50 index, which tracks the largest 50 Indian companies listed on its exchange, to sink by 6 per cent in only one day.
Since then, however, the market has more than recovered. Indeed, it now trades at about record highs.
This is thanks in no small part to India’s growing army of retail investors, where numbers have boomed since the pandemic. In early 2020 there were 31 million Indians who were registered to trade with its National Stock Exchange in Mumbai; today there are more than 90 million accounts, as more middle-class Indians, helped by the expansion of internet access and state technology projects, begin to invest their savings. At the end of May, domestic equity inflows by both retail and institutional investors into the market this year hit about $7 billion per month, according to Jefferies, the broker.
Nick Payne, of Jupiter, the asset manager, said this had improved the stability of the Indian market. “When the domestic investor base becomes large, the nature of the market performance changes,” he said. “Historically, emerging markets have relied on foreign capital. If foreigners go cold or currencies move, the market would suffer. But a local investor base makes it much more stable.
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“In India, retail investors are putting their money into a systematic investment plan, making contributions on a monthly or quarterly basis into mutual funds, much like one might do with an Isa.”
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The market has delivered for these investors. In the past five years, India’s Nifty 50 and Sensex indices have delivered a total return of 106 per cent and 115 per cent, respectively, narrowly beating Wall Street’s S&P 500, which is up by 101 per cent over the same period.
Growth remains at the heart of the investment case for India, which is expected to be the fastest-growing economy this year. While China is still the main driver of global growth, India is forecast to be the second most powerful driver for the rest of the decade, according to forecasts by the International Monetary Fund. Much of this is thanks to its long runway for infrastructure development. Analysts at the Bank of America estimate that the country is only in the third year of a capital expenditure cycle that will last for a decade or so.
Just over a third of the Sensex index comprises the financial services sector, with big banks such as HDFC and ICICI. The second largest sector is technology, at 14 per cent, followed by energy and consumer businesses. It is home to huge conglomerates, including Reliance Industries, Infosys and Tata Consultancy Services.
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There is political risk in the region. India maintains ties with Russia and although the country has a relationship with China, there is an old border dispute in the Himalayas. However, investors appear to be turning to India as a more stable destination for their money than its neighbour. On Interactive Investor, investments in China dropped 13-fold in the two years that ended in April, compared with a 26-fold rise in India-focused funds, investment trusts and exchange-traded funds.
The Tempus take
The Jupiter India fund was worth £1.6 billion as of the end of May, making it one of the largest open-ended funds in the sector.
Only a few investment trusts listed in London specialise in Indian equities. The most high-profile is the JP Morgan Indian Investment Trust, but its shares trade at an 18 per cent discount to net asset value. This reflects a prolonged period of underperformance under different management teams.
One of the most popular is the £447 million Ashoka India Equity Investment Trust, which, unlike most investment companies, is trading at a 2.1 per cent premium to its underlying assets and has risen by more than 150 per cent in the past five years. Its premium compares with its 12-month average of 1.8 per cent, which likely reflects the growing appetite for Indian shares.
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At the end of May its largest holding was in ICICI Bank, where it invests just over 4 per cent of its £389 million portfolio. This is followed by the State Bank of India and Ambuja Cements.
The managers do not charge a fixed management fee, but the trust can charge a performance fee of 30 per cent of outperformance if it beats its MSCI India index, its benchmark, over periods of three years. This is capped at 12 per cent of its average adjusted net assets over that time.
