If India continues to grow as fast as it has in the past two decades, the India of 2029 and 2039 will be vastly different from today as a number of megatrends shape its future. Urbanization is keeping pace – approximately 30 people are moving to cities from rural areas every minute.1 Domestic investments are increasing, including spending in infrastructure. Meanwhile, high-value exports such as pharmaceuticals and engineering goods (on top of its strong technology services exports reflect India’s global economic clout).
While India’s long-term economic outlook appears bright, investors can’t underestimate its idiosyncrasies, which can affect the prospects of individual companies. For instance, as one of world’s largest energy users and a net oil importer, India is prone to the risk of a twin (fiscal and current account) deficit from higher oil prices. While the country has favorable demographics, skilled workers are in short supply and wage inflation is high. While the government is putting more money into infrastructure, existing transport and energy systems are still largely insufficient to cope with current demand. In addition, land is in high demand and can be difficult to acquire.
Source: Source: PineBridge data, as of February 2019. For illustrative purposes only. We are not soliciting or recommending any action based upon this material. Any opinions, projections, forecasts, and forward looking statements presented are valid only as of the date.
Given this contrast, we believe vigilance and patience will be essential to creating wealth from investing in India. That’s why our approach is to carefully select companies that can see opportunities in the shifting landscape and navigate their way through India’s transformation.
Investors in India tend to find comfort in the index, assuming that where India’s GDP growth goes, so goes the index. That hasn’t always been the case, partly because of the structure of the Indian economy, where there’s a large informal sector and many unlisted enterprises. In other words, the index can be a poor proxy for overall economic activity.
We believe that a better way to capture growth opportunities in India is by methodically constructing a portfolio without regard to the index. From a universe of approximately 7,000 listed companies2, our India Equity Strategy builds a portfolio of 30-40 stocks. Each stock portfolio passes through rigorous research and analysis focused on three fundamental areas: the strength of the company’s business model, the quality of management, and valuation. That is, we find strong businesses that are resilient through the economic cycle, we ensure they have capable management teams that can be trusted with capital, and finally, we invest if the prices are justifiable. This time-tested stock selection process is designed to mitigate permanent loss of capital for our investors.
A deep understanding of a company is key. Last year alone, our on-the-ground team3 traveled 80,000 kilometers across India to research and visit companies and meet management. The team4 tracks over 20 proprietary databases and leverages a variety of sources as well as the insights of the global PineBridge investment team.
Our high-conviction approach results in a portfolio that’s starkly different by sector breakdown from one that replicates the benchmark (MSCI India Daily Total Return Net Index), yet is diversified.
We have found opportunities across the market spectrum – fast-growing companies that hone their digital, technological, and intellectual property advantages to expand market share, companies that stand to benefit from structural drivers such as consumption and infrastructure, and those making a turnaround.
India’s transformation is likely to be accompanied by disruptions, in the form of newer business models, new regulations, and other changes. This calls for a smart playbook – investors need to look for companies able to navigate through various cycles to maximize the opportunity, while minimizing risk. The 13-year track record of our India Equity Strategy shows that the market is rich in alpha – for those who know what to look for and how to look for it.
1 Invest India as of 2 January 2018; accessed at https://www.investindia.gov.in/team-india-blogs/india-preparing-biggest-human-migration-planet
2 World Federation of Exchanges, as of 28 February 2019
3 Provides non-binding advisory services to PineBridge Investments Asia Limited
4 Provides non-binding advisory services to PineBridge Investments Asia Limited
Investing involves risk, including possible loss of principal. The information presented herein is for illustrative purposes only and should not be considered reflective of any particular security, strategy, or investment product. It represents a general assessment of the markets at a specific time and is not a guarantee of future performance results or market movement. This material does not constitute investment, financial, legal, tax, or other advice; investment research or a product of any research department; an offer to sell, or the solicitation of an offer to purchase any security or interest in a fund; or a recommendation for any investment product or strategy. PineBridge Investments is not soliciting or recommending any action based on information in this document. Any opinions, projections, or forward-looking statements expressed herein are solely those of the author, may differ from the views or opinions expressed by other areas of PineBridge Investments, and are only for general informational purposes as of the date indicated. Views may be based on third-party data that has not been independently verified. PineBridge Investments does not approve of or endorse any re-publication or sharing of this material. You are solely responsible for deciding whether any investment product or strategy is appropriate for you based upon your investment goals, financial situation and tolerance for risk.