Kristy Fong, Investment Manager, abrdn New India Investment Trust plc
- India is becoming an increasingly important geopolitical and economic power
- Narendra Modi has been in Washington DC to forge closer industrial ties between the two nations
- We have sought to align ourselves with the dynamic growth sectors of the Indian economy
In a recent report, Goldman Sachs laid out India’s path to becoming the world’s second-largest economy over the next fifty years. This stated that India needed to seize its demographic advantage, using it to build manufacturing capacity, grow its burgeoning service sector, and continue the growth of its infrastructure. It said the country had made significant progress on innovation and technology and the conditions were ripe for a boom in private sector capital spending.
There are signs that the country is seizing this momentum. In June, Indian Prime Minister Narendra Modi touched down in Washington DC for his first state visit to the US. Defence ties, technology partnerships and India’s role as an interlocutor in Indo-Pacific relations were all on the agenda, but the visit was important symbolically as well as practically. It showcased India’s emerging might on the geopolitical and economic world stage.
Modi met Tesla chief Elon Musk to discuss whether the company could build manufacturing facilities in India. He met other technology leaders at a White House state dinner, seeking to push India’s advantage as Asian countries increasingly compete to be the beneficiary of companies relocating supply chains outside China – the ‘China plus one’ strategy.
Beyond building diplomatic relations abroad, the country is also addressing some of the long-term structural imbalances that have held its economy back. Its reliance on imported commodities, for example, has left it vulnerable to volatility from international markets and inflation. It has uneasily straddled both sides of East-West tensions, buying cheap oil from Russia, but maintaining strong ties with Western corporations, but this is a difficult position to maintain over the long-term.
The country has sought to address this energy dependence with plans to bring energy generation onshore. It aims to reach net zero emissions by 2070, with 50% of the power generation capacity coming from non-fossil fuel sources by 2030. There are also government-led initiatives on electric vehicles and green hydrogen. In addition to green energy, India is also striving to build self-reliance in areas such as semiconductors.
The country is drawing in capital from abroad. International and domestic companies are starting to build production. India has all the land and people it requires. It now needs to focus on training and productivity which will take longer, but the government understands this and is putting the right infrastructure in place to make it a welcoming place to do business.
The overall picture for India is of a country taking charge of its own destiny, building self-sustaining economic growth with increasing confidence. At abrdn New India Investment Trust, we have sought to align ourselves with the dynamic growth sectors of the economy, looking to India’s future rather than its past.
What does this look like in practice? Aegis Logistics, for example, is one of our top conviction positions. It is a leading importer and handler of liquefied petroleum gas (LPG) Liquid & Gas terminals across India’s major ports, with vast storage capacity. In this respect, it helps provide greater security over energy needs. We continue to hold a range of IT services companies, such as TATA and Infosys, that are promoting innovation and are tapped into trends such as digitisation. We also like disruptive companies such as PolicyBazaar, which is changing the face of online insurance. We also hold a number of healthcare companies, which are beneficiaries of improving health services across India. Private banks are also beneficiaries of better credit growth on the back of an improved economic outlook.
Overall, the consumer sector is still a fertile hunting ground for investment opportunities. There is an emerging middle class across India, fuelled by rising wealth levels, and penetration of key consumer goods such as washing machines is still low. In the short-term, however, the consumer sector is vulnerable to the effects of inflation. Indian inflation is falling, but remains high, at 4.8% (June 2023). We are looking for interesting companies to add at the right price.
We are also looking at the beneficiaries of rising capital expenditure. A recent purchase has been KEI Industries, which makes cables and wires. It is seeing rising demand as companies invest in new plants and machinery. We have also added ABB Industries, a pioneer in robotics, machine automation and digital services.
India is in a sweet spot. The IMF forecasts GDP growth of 5.9% for 2023 and 6.3% for 2024, the fastest projected growth of any major economy. Confidence is strong and the economy is far more stable than at any other point in its recent history. The central bank has been prudent in watching inflation, raising rates. India is seizing its moment.
Companies selected for illustrative purposes only to demonstrate the investment management style described herein and not as an investment recommendation or indication of future performance.
Risk factors you should consider prior to investing:
- The value of investments, and the income from them, can go down as well as up and investors may get back less than the amount invested.
- Past performance is not a guide to future results.
- Investment in the Company may not be appropriate for investors who plan to withdraw their money within 5 years.
- The Company may borrow to finance further investment (gearing). The use of gearing is likely to lead to volatility in the Net Asset Value (NAV) meaning that any movement in the value of the company’s assets will result in a magnified movement in the NAV.
- The Company may accumulate investment positions which represent more than normal trading volumes which may make it difficult to realise investments and may lead to volatility in the market price of the Company’s shares.
- The Company may charge expenses to capital which may erode the capital value of the investment.
- Movements in exchange rates will impact on both the level of income received and the capital value of your investment.
- There is no guarantee that the market price of the Company’s shares will fully reflect their underlying Net Asset Value.
- As with all stock exchange investments the value of the Company’s shares purchased will immediately fall by the difference between the buying and selling prices, the bid-offer spread. If trading volumes fall, the bid-offer spread can widen.
- The Company invests in emerging markets which tend to be more volatile than mature markets and the value of your investment could move sharply up or down.
- Yields are estimated figures and may fluctuate, there are no guarantees that future dividends will match or exceed historic dividends and certain investors may be subject to further tax on dividends.
Other important information:
Issued by abrdn Fund Managers Limited, registered in England and Wales (740118) at 280 Bishopsgate, London EC2M 4AG. abrdn Investments Limited, registered in Scotland (No. 108419), 10 Queen’s Terrace, Aberdeen AB10 1XL. Both companies are authorised and regulated by the Financial Conduct Authority in the UK.