India Equities: Opportunities Amid Headwinds

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India Equities: Opportunities Amid Headwinds

India and its equity markets have often been underestimated. Despite many challenges, over the past five, 10, and 20 years, the MSCI India Total Return Index delivered 15%, 11%, and 13% annual compounded returns in US dollars.1 This year, India is forecast to be the fastest-growing major economy in the world, expanding at 8.2%.2  

As India's economic footprint expands, we believe the country’s sheer size and income growth potential offer plenty of investment opportunities. Over recent years, India has developed greater resilience against the external shocks of today, such as rising global interest rates, commodity prices, or other geopolitical disturbances, given its high foreign exchange reserves, reasonable current account balance, and much-improved banking sector and healthier corporate and household balance sheets.

India Has Fortified Its Foreign Exchange Reserves

India Has Fortified Its Foreign Exchange Reserves

Source: Reserve Bank of India as of 4 March 2022.

For example, one overlooked factor when assessing the impact of rising energy cost on a large oil importer like India is its energy intensity, which has been coming down over the past decades, suggesting that the country is becoming more energy efficient.

Energy Intensity Has Fallen

Energy Intensity Has Fallen

Source: World Bank, Enerdata, RBI, PineBridge Investments, April 2022. KOE is kilogram oil equivalent , based on purchasing power parity (PPP) US$ constant 2015.

Force vectors such as accelerating digitalization, growth in direct-to-consumer marketing and sales, and new demand for health and home products, along with environmental imperatives and geopolitical rewiring of supply chains, and others that had started impacting companies before the pandemic have become extremely powerful. We believe disruptions arising from these force vectors will create new opportunities for investors. A stable and favorable regulatory regime and the low cost of capital are helping companies invest in these growth areas. With the cost of technology going down and its ubiquity increasing, India is no longer years behind other nations. In fact, in some cases, India is leading the technological revolution – a case in point being its payment systems. India’s government has enabled a nationwide, real-time, inter-bank mobile payments system called Unified Payments Interface (UPI).

Use of Instant Electronic Payments Has Increased During the Pandemic

Instant Electronic Payments Have Become More Widespread Since the Pandemic

Source: Reserve Bank of India and PineBridge Investments as of March 2022. Instant electronic payments include immediate payment service, UPI, debit, credit, mobile wallets, and prepaid cards that are executed instantaneously.

We also see investment opportunities arising from sustainability and other environmental, social, and governance (ESG) factors. India is the No. 3 carbon dioxide emitter globally and is home to approximately 18% of the world’s population.3  To achieve the global goal of reducing harmful emissions and bringing about social equity, India needs to be part of the ESG equation, and we see room for Indian companies to turn ESG improvements into competitive advantages. Moreover, India has stringent regulations to protect minority investors (corporate governance) and is ranked 13th globally in this area in the World Bank’s Ease of Doing Business Survey.4

India’s growing confidence is echoed by domestic investors, who have been increasingly investing in the equity markets and picking up the slack during times of foreign capital outflows. Over time, as India’s weight in the MSCI Emerging Market Index goes up commensurate with the size of its economy, foreign investor participation should also grow.

Domestic Investor Participation Has Increased

Domestic Investor Participation Has Increased

Source: Bloomberg and PineBridge Investments as of 19 April 2022. 1 crore = Rs10 million

After recent global events, India has emerged as one of the more resilient economies among the BRICS emerging markets (Brazil, Russia, India, China, and South Africa). While some headwinds in the form of geopolitics, rising interest rates, high commodity prices, etc., may make Indian markets look less attractive than other markets, we believe volatile times can provide investors opportunities to accumulate strong companies that are positioned to benefit from India’s long-term trends.

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 republication 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.

Footnotes

1 MSCI as of 31 December 2021
2 IMF as of April 2022
3 Rhodium Group as of 23 December 2021 based on data from 2020; UN World Population Prospects 2019, https://population.un.org/wpp/Download/Standard/Population
4 World Bank Ease of Doing Business Survey 2020, https://www.worldbank.org/en/programs/business-enabling-environment/doing-business-legacy

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