Is now a good time to invest in India?

Emerging markets have played second fiddle to the tech-heavy US market in the last decade, but things are rapidly changing.

Recent estimates from the International Monetary Fund (IMF) forecasts Asia and emerging markets to grow by 5.2% in 2024, compared to global growth of 3.1%^.1

India is grabbing the attention of investors for a multitude of reasons.

According to Jefferies, a global investment bank, India’s stock market is expected to double in value to $10 trillion by 2030. Jefferies analysts also predicted that the Indian economy would surpass Japan and Germany’s by 2027.²

India also has a growing middle class. It currently represents 31% of India’s population and is expected to reach 40% by 2031.³  

Jefferies analysts said growth in India in coming years would be impossible for investors to ignore. 

India’s growth comes at a cost

However, investing in the Indian stock market is significantly more expensive compared to neighbouring Asian countries.

Data from CEIC shows that the price-to-earnings ratio for India's BSE Sensex is at 26, compared to Japan's Nikkei at 20 and China's CSI 300 at 12.⁴

India has always been more expensive than other Asian markets, but the current premium is much larger than historically. 

Data from Goldman Sachs shows that on average India is currently trading at a 64% premium to Asia and emerging markets, excluding China and Japan.  

This may well be due to interest from domestic investors who have flocked to India due to its growth success story. Inevitably this has pushed prices up and some investors may well look to neighbouring Asian countries for discounts.

How do I get exposure to India?

There are six funds on our Select 50 that focus on Asia and emerging markets:

1. Comgest Growth Emerging Markets
2. Fidelity Funds - Asian Smaller Companies
3. iShares Core MSCI EM UCITS ETF
4. Lazard Emerging Markets Fund
5. Schroder Oriental Income Fund
6. Stewart Investors Asia Pacific Leaders Sustainability Fund Class

These three funds feature Indian stocks in their top 10 holdings:

1. Fidelity Asian Smaller Companies Fund

This fund primarily invests in small companies as they tend to be less well researched, which leads to greater valuation anomalies.

Its top 10 holdings include six India-based companies - Axis Bank, LIC Housing Finance, global professional services firm Genpact, energy company PTC India, HDFC Bank and pharmaceutical company, Granules India.

2. iShares Core MSCI EM IMI UCITS ETF

This fund aims to track the performance of the MSCI Emerging Markets Investable Market Index which consists of large, medium, and small cap companies.

Its top 10 holdings include three India-based companies include Reliance Industries, ICICI Bank and Infosys.

3. Stewart Investors Asia Pacific Leaders Sustainability Fund

This fund focuses on large and mid-sized companies that have a total market value of at least $1bn.

The fund manager invests in shares of “high quality” companies that are positioned to contribute to, and benefit from sustainable development.

Its top 10 holdings include four Indian-based companies - Mahindra & Mahindra, HDFC Bank, Kotak Mahindra Bank and Tata Consultancy Services.

Sources:

¹ International Monetary Fund, January 2024 

² Yahoo Finance, 23 February 2024 

³ Financial Times, 17 May 2023 

⁴ CEIC, 1 December 2023

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. Select 50 is not a personal recommendation to buy or sell a fund. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.