Time to invest in India?

For growth-seeking investors, could it perhaps be time for India to get some attention? We take a look at this emerging market. 


When it comes to the world's most exciting economies, China tends to dominate headlines. But while China's growth rate has been slowing, neighbouring India has continued to power ahead with healthy economic growth. According to IMF forecasts, India's growth rate is predicted to hit 7.4% this year, compared to China's 6.6%.

For growth-seeking investors, could it perhaps be time for India to get some attention? We take a look at this emerging market. 


Consumer spending driving the economy

India's 1.3 billion population is a key driving force behind their economic expansion. The average age of the population is 27 years (compared to 37 years in China and 38 years in U.S.). This is a young and growing workforce that will continue to contribute to the economy's growth through consumer spending. 


Governmental reforms promoting growth and investment

Another cause for excitement is the reforms being introduced by Indian Prime Minister Modi.

In the past two years since taking office, Modi's government has already brought in a raft of economic changes and kick-started many ambitious growth initiatives. These include boosting employment prospects, as well as improving the country's outdated infrastructure, particularly its electricity and water systems. PM Modi also wants to encourage more foreign investment into India across a handful of key sectors such as retail, defence, agriculture and banking. This is expected to be another spur for economic growth.

Another major improvement will see the replacement of numerous complicated inter-state taxes with a single uniform goods and services tax (GST). This simplified tax regime is expected to improve the flow of goods and services between states.

While critics claim that changes are not happening quickly enough, PM Modi has stated that the reforms are long-term and will have far reaching impact across India's economic and political landscape. He's also battling wide-scale government and corporate corruption. Businesses in India have broadly welcomed the reforms being introduced, particularly plans to improve the ease of doing business in the country.


Boost for companies

Corporate earnings have been steadily improving in India and growth rates are expected to average 7% this year, which is higher than the average earnings growth rate for the MSCI All Country World Index. It's expected to be even better next year due to a cut in Indian corporate taxes and the introduction of GST. Bloomberg data predicts that the average corporate earnings for the MSCI India Index will be more than 16%. 


An exciting time but be prepared for a roller-coaster ride

For retail investors, there are many ways to tap into the India growth story. This could be via a single country (India) unit trust, as part of an emerging markets unit trust or a pan-Asian one, each investing in a basket of Indian stocks.

You should bear in mind though that while the rewards look enticing, there are risks to investing in emerging markets. They tend to be more reactive compared to developed markets, and hence can be very volatile. Huge ups and downs are to be expected, so India may not be suitable for the faint hearted or for those who cannot afford to take a long-term approach.


Information correct as at 28 September 2016.

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