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The views expressed are those of the authors at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional, institutional, or accredited investors only.
In our view, global equity investors may do well to consider Indian equities. Despite criticisms that Indian equities trade at higher valuations today than they have historically, we believe that they have the potential to help drive total returns over time.
The longstanding view of India’s investment potential is that the nation presents a long runway for growth. Below, we summarize three recent developments and identify how, in our view, they’re creating a favorable backdrop for security selection by generating an environment that helps investors assign more conviction to companies’ future cash flows (Figure 1).
The Indian equity market has outperformed its global counterparts since 2008 and over the past 30 years. The only other country that can say the same is the US. So, the questions now are: Is this outperformance warranted? Can it continue? Should India have a higher multiple than the rest of the world?
For much of its history, the Indian market has traded at a premium to its emerging market (EM) and global peers. This is partly due to India’s positive demographics — a well understood part of its equity story.
A key reason India has outperformed over the last 30 years, in our view, is its uninterrupted journey of economic reforms. Over this time, there have been no fewer than seven different governments that have ruled India. These have included political parties of all hues, from communists to full-blown capitalists and everything in between. Importantly, however, economic reforms have not stopped.
A second reason we believe India will continue to outperform over the next decade and more is the “India digital stack.” This is a unique set of digital public goods India has created. No other country has done anything similar at such scale. We believe this will be a game changer for India.
Finally, in our view, a significant reason why India has and will continue to sustain its premium over other markets is the reduction in equity risk premium that has happened under the current government. Such a reduction in risk premium allows our team to have more confidence in future cash flows and discount them at lower rates. The contributing factors fall into three main categories:
The three factors above have led to falling risk premia in India, which, in turn, could keep its valuation premium high. But the same factors also allow us to have much more conviction on the future cash flows of Indian companies and keep looking for long-term value-creating managements. We believe we’re at a very exciting phase in India today and prudent global equity investors may wish to consider Indian equities for potentially compelling, long-term performance.
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By design and by default: Industry consolidation gathers steam across IndiaContinue reading
India equity: An unsung long-term performance storyContinue reading
India equity's improving risk/return tradeoff
This is not your grandfather's India equity market. Equity Portfolio Manager Niraj Bhagwat and Investment Director Philip Brooks explain why and back their argument with risk/return data.
India: Structural tailwinds for 2023 and beyond
Following his recent trip to India, Macro Strategist Tushar Poddar shares why he's very positive on the country's medium- to longer-term structural outlook.
By design and by default: Industry consolidation gathers steam across India
Equity Portfolio Manager Murali Srikantaiai sees increased industry consolidation in India as a largely positive trend from which some equity investors can (and should) seek to benefit.
India equity: An unsung long-term performance story
Despite strong long-term performance, Indian equities are often overlooked. That may be a mistake, say Equity Portfolio Manager Niraj Bhagwat and Investment Director Philip Brooks.