Time to look at India_articleIs it time to look at India
again?
its efforts to the future growth of the nation, with key emphasis
on its existing plans for infrastruc- ture.
A large and diverse nation, both in population and in region,
India’s future is dominated by three key growth drivers.
Infrastructure investment
For many emerging nations, infrastructure can be an important tool
for economic growth as it offers short term benefits such as
employment, and longer term benefits in the form of useful
infrastructure to improve access and lifestyle for a population,
such as via roadways or electricity. It also builds out appeal to
international investors who see viable infrastructure to support
production or trade activity. India is no exception to this path –
in fact, China’s accelerated growth in the past has largely been
attributed to its infrastructure focus and it has since needed to
transition to a services-led economy.
Global challenges may just be a temporary setback for India, which
is forging ahead with growth plans. Investors considering emerging
markets for diversification are often attracted to the Asian
region, due to the well documented growing middle-class and
economic prospects that build a growth case for this region. While
China has been a long-held investment darling, India’s star is on
the rise and many nations, including Australia, are seeking to
forge closer trade partnerships.
The COVID-19 pandemic has been significant globally, not just from
a health perspective but also economically. India was initially
hard-hit, implementing one of the harshest and most extensive
lockdowns globally¹. Cases appear to have peaked in India in
September and there are now signs of economic recovery as seen in
indica- tors such as industrial output and energy con- sumption².
The Indian government has returned
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Driving the Indian economy
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The Indian government has also recently passed updated labour codes
to simplify laws and compliance processes as well as incorporating
a social security fund for gig and platform workers9. These reforms
are anticipated to support continued ease of doing business in
India.
Monetary policy in the form of interest rates set by the Reserve
Bank of India (RBI) has further supported business investment. The
RBI lowered interest rates during the COVID-19 pandemic to support
business lending activity. This is likely to remain accommodative
for some period to support ongoing recovery¹0.
The Indian government has also been active in fiscal spending to
support the ongoing growth of the country by reducing poverty.
While many programs have existed for some time, the continuation
has also been a vital part of recovery from the COVID-19
pandemic.
Some examples include:
Neelkanth Mishra, Managing Director, Indian strategist and Co-Head
of Equity Strategy for Asia Pacific at Credit Suisse, says “the
inclination of the government is to do investment spending. There
is the national infrastructure pipeline, it's a set of projects.
For example, a lot of projects in roads, quite a few projects in
railways, power distribution, renewable energy generation, water
and sanitation and gas pipelines. This will mean a remarkable
increase in the number of households with piped gas connections.
These are things that most countries have had for a long time, but
in India, we didn't. It is still a cylinder-based distribu- tion.
These gas pipelines are growing. There's a large set of projects
which can be accelerated.”
As part of this program, the Indian government has committed to USD
1.4tr infrastructure invest- ment by 2025³. There is also a strong
focus on climate and renewables, with the Ministry of Petroleum
& Natural Gas announcing in Septem- ber 2020 that it aims to
operate 50% of fuel stations using solar power within five years4.
India has also partnered with Japan via the India-Japan
Coordination Forum for Development of North- east for projects in
India’s Northeast states5.
A range of listed companies in India stand to benefit from the
increased infrastructure invest- ment. One example is Larsen &
Toubro with services extending from engineering, construc- tion and
manufacturing to technology and finan- cial services. It has been
awarded a range of gov- ernment infrastructure contracts, most
recently for rail works between Delhi-Meerut and a surface-based
water supply project to Patiala town6.
In the wake of the COVID-19 pandemic, the Indian government has
forged ahead with infrastructure projects to support the recovery
of the country.
Reform and fiscal policies
India has historically been complicated for busi- ness operations,
but government reforms have assisted in opening the country to
domestic and foreign business investment.
Some examples of these reforms include:
The introduction of GST in 2017 which cen- tralised 17 indirect
taxes. This made the Indian goods market more competitive and
reduced costs of doing business7.
Corporate reforms covering reduced registra- tion fees, stricter
requirements before commencement of business operations, improved
insolvency processes, an integrated general incorporation form and
enabling post-clearance audits and enhanced electronic trade
submissions to enhance cross-border trade8.
The Mahatma Gandhi National Rural Employ- ment Guarantee Act
(NREGA) which guaran- tees 100 days of unskilled manual labour per
year on public works projects at approximately 200 rupees a
day¹¹.
Pradhan Mantri Jan Dhan Yojana (Prime Minister’s People’s Wealth
Scheme) which aims to offer affordable access to financial services
such as basic savings and deposit accounts or insurance¹².
While foreign companies stand to benefit from moving into the
Indian market as business
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conditions ease, domestic companies are also capitalising on
greater cross-border activity. One example is Infosys, India’s
second largest provid- er of consulting and IT services across the
globe with a staff headcount of more than 240,000 in nearly 50
countries¹³. Infosys’ proprietary soft- ware Finacle is considered
an industry-leading program and used globally¹4.
Consumption
India is expected to benefit from a growing middle-class across
Asia and the accompanying economic rise in consumption. It is
expected to see the percentage of households in poverty drop from
15% to 5% by 2030¹5.
The movement of people to higher financial status represents a huge
opportunity. It is an audience with the ability to afford more than
just the basics and demand better quality goods and services. At a
base level, manufacturers of higher quality consumer staples can
benefit from this demand. For example, a middle-class audience is
more likely to purchase well-known brands or consider organic foods
over mass-grown options. The opportunity extends across industries.
A middle-class audience has excess cash to consider travel,
education, healthcare, medical needs, luxury goods and technology.
Universities and schools worldwide are recognising the current
interest in accessing their campuses, with international education
worth AUD 38bn to the Australian economy¹6. Luxury consumer discre-
tionary brands from houses like LVMH are already reaping the
benefits¹7, while healthcare and vita- min companies like
Blackmores are discovering consumers who are focused on their
health needs and have the finances to pay for it¹8.
While foreign companies have an opportunity to access this trend,
domestic based companies have cultural and physical base advantages
in reaching this audience. Hindustan Unilever is one such example.
The largest consumer staples company in India, it has direct
coverage of 3.5 million outlets and around 88 million consumers
within India¹9. Another example is India’s largest listed company
by market capitalisation, Reliance Industries.
Reliance Industries spans three segments: oil and gas,
telecommunications and retail (consumer electrics, fashion and
groceries). It has been working aggressively to expand its consumer
activity. On the telecommunications side, it offered users free
internet calling for one year and invested heavily in data services
and capacity which has driven it to more than 30% market share in
the mobile space²0. On the retail side, it has recently purchased
Future Group²¹ – the first to launch hyper stores in India – and
its WhatsApp grocery order system called JioMart increased in
popularity during lockdown²².
On the more discretionary end, the market for personal vehicles in
India is also on the rise. Maruti Suzuki is the largest passenger
car com- pany in India and has 50% domestic market share²³. The
COVID-19 pandemic has supported increased interest in personal
vehicle ownership, with 57% of Indian consumers considering
purchasing a car in 2020 compared to the global average of
35%²4.
Investors can consider investing in India from a few
perspectives.
Using an investment in India in a portfolio
Regional diversification
Diversification is used by many investors to manage risks specific
to countries and regions. Spreading investments across a range of
regions, such as India, can assist with this as well as offering
exposure to different economic drivers compared to Australia or the
US. From this perspective, it could be considered part of the core
investments within a portfolio.
A thematic investment
Investors may consider an investment in India as a form of exposure
to the broader trend for the growth of the middle-class across
Asia. This may see the investment form part of satellite portion of
a portfolio to tilt towards thematic investments.
1.
2.
It can be difficult for investors to directly access the Indian
market for listed shares. From this perspective, investors could
consider other options such as:
For more information on NDIA, please speak to ETF Securities.
ETFS Reliance India Nifty 50 ETF (ASX Code: NDIA) is the only fund
in Australia that offers exposure to the Indian economy via its
benchmark index, the NSE Nifty50 Index. NDIA includes exposure to
the 50 largest and most liquid companies listed on the National
Stock Exchange of India (NSE) and represents more than 60% of the
market capitalisation of India.
How to invest in India
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[1] https://qz.com/india/1828915/indias-coronavirus-lock-
down-harsher-than-china-italy-pakistan/ [2]
https://www.businesstoday.in/current/economy-politics/r-
bi-rate-cut-economic-recovery-covid-lockdown-crisis/story/422035.html
[3] Source: India 2030: exploring the Future; National
Infrastructure Pipeline [4]
https://www.ibef.org/industry/infrastructure-sector-india.aspx [5]
https://www.ibef.org/industry/infrastructure-sector-india.aspx [6]
https://eip.lntecc.com/homepage/common/p372.htm [7]
https://www.makeinindia.com/five-rea-
sons-why-gst-is-good-for-business [8]
https://www.doingbusiness.org/en/reforms/overview/economy/india [9]
https://economictimes.indiatimes.com/news/economy/policy/la-
bour-reforms-intend-to-put-india-among-top-10-nations-in-ease-of-doing-b
usiness/articleshow/78257939.cms?from=mdr [10]
https://www.businesstoday.in/current/economy-politics/r-
bi-rate-cut-economic-recovery-covid-lockdown-crisis/story/422035.html
[11] https://www.nrega.nic.in/netnrega/mgnrega_new/Nrega_home.aspx
[12] https://www.pmjdy.gov.in/scheme [13]
https://www.infosys.com/about.html [14]
https://www.edgeverve.com/finacle/australia/ [15]
http://www3.weforum.org/docs/WEF_Future_of_Consumption_-
Fast-Growth_Consumers_markets_India_report_2019.pdf [16]
https://www.smh.com.au/politics/federal/coronavirus-af-
fects-a-third-of-private-tertiary-education-students-20200217-p541o2.htm
l [17] https://www.lvmh.com/investors/profile/key-figures/#groupe
[18] https://www.blackmores.com.au/about-us/investor-centre/annu-
al-and-half-year-reports [19]
https://www.hul.co.in/investor-relations/ [20]
https://www.bloombergquint.com/business/jio-becomes-first-tel-
co-to-cross-40-crore-subscribers-mark-trai-data [21]
https://www.moneycontrol.com/news/business/reliance-retail-fu-
ture-group-deal-how-will-it-benefit-rils-consumer-facing-businesses-57704
31.html#:~:text=Reliance%20Retail%20is%20by%20far%20the%20largest
%20retailer,chief%20executive%20of%20retail%20consultancy%20firm%2
0Third%20Eyesight. [22]
https://www.brand-experts.com/brand-best-practice/covid-19-im-
pact-reliance-industries/ [23]
https://timesofindia.indiatimes.com/auto/news/maruti-suzu-
kis-mpv-market-share-touches-50-as-xl6-completes-a-year/articleshow/7
7714792.cms [24]
https://auto.economictimes.indiatimes.com/news/passenger-vehi-
cle/cars/almost-57-indian-consumers-willing-to-purchase-cars-in-2020-su
rvey/75672140
Growth opportunity
Investors looking for long-term growth opportunities could consider
India within growth allocations in either the core or satellite of
a portfolio given its prospects and activity.
3.
Direct investment in companies with business operations in India
listed in Australia or inter- nationally.
Actively or passively managed funds which focus on Asia, themes
relevant to Asia or India or specifically focus on India.
SNAPSHOT
Management Cost (%pa) 0.85 Expense Recovery (%pa) 0.15 Rebalance
Frequency Semi-annual
W-8 BEN Form Required No
Distribution Frequency Annual
ETFS Management (AUS) Limited (AFSL 466778) (“ETFS”), is the
responsible entity and issuer of units in the ETFS Reliance India
Nifty 50 ETF (ASX Code: NDIA) (ARSN 628 037 856) (“Fund”). The PDS
contains all of the details of the offer of units in the Fund. Any
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Information current as at 18 November 2020.
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