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Mar 16, 2024

No way around India?

Investing in the world’s most populous economy.

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In a nutshell

  • India has become an investor favorite in 2023 while China’s popularity has declined
  • The reform and investment programs are likely to continue. We are also expecting to see ongoing momentum in service exports[1].
  • India's equities are not cheap, but we expect growing investor interest from abroad to continue to grow. A significant driver being the opening of the bond market, which could also help the currency to stabilize further.

Interested?

For further information see our CIO Special

India – a poorly kept secret

Investors love the Indian story

Over the past three years the MSCI India index has risen by as much as 50%. Meanwhile, over the same period, the Emerging Markets (EM) index, MSCI EM[2], has lost 20%, and China's shares (MSCI China[2]) have lost as much as 50%[3]. Indian equities have therefore been outstanding performers in the EM universe. So much so that they are now trading at a valuation premium of around 70% to the average of other emerging markets.

The Indian Equity Market has performed strongly over the past 10-years both in absolute terms as well as outperforming the broader Asia ex. Japan and Global stock markets.

MSCI India Index.png​

The chart shows the 10-year absolute performance of the MSCI India Index in green. The relative performance of the MSCI India Index compared to the MSCI AC Asia ex Japan Index is shown in grey and relative compared to the MSCI World Index is shown in blue. The 10-year performance is indexed at 100 starting on 04.04.2014. For further performance data over other periods, please refer to www.msci.com. Past performance does not predict future returns. Sources: LSEG data and analytics, DWS Investment GmbH as of 06.02.2024.

India’s positive demographics

For a long time, India's development into an industrial and service nation was incremental. However, +in recent years the steps forward have become larger. The foundation has been laid by the current government’s reforms and an investment offensive that has done much to strengthen the infrastructure in particular. Government infrastructure expenditures have risen by a full 30% on average over the past three years. This is still expected to grow by further 11% in the current fiscal year[4]. This ramping up of government capital expenditure should help India make better use of its big demographic advantages. The country not only has a relatively young population (on average ten years younger than China's), but it also has falling birth rates[5], fundamentally improving the dependency ratio between the working and non-working population. This two-fold demographic tailwind sets India apart from most other emerging economies.

India’s positive demographics: still rising working population (Age 15-64)


India’s positive demographics still rising working population.png​

Sources: UN department of social & economic affairs, DWS Investment GmbH as of 11/1/23
Forecasts are not a reliable indicator of future performance. Forecasts are based on assumptions, estimates, views and hypothetical models or analyses, which might prove inaccurate or incorrect.

India’s huge catch-up potential

Beyond this, there are quite a few additional supportive developments to consider. The growth in services exports is rapid, which is offsetting India's trade deficit in goods and giving the central bank and government more room for maneuver. Moreover, the opening of the bond market and inclusion of Indian government bonds in major indices should further boost foreign investor interest. There is also a growing desire in the West to avoid relying solely on China for certain products. And the technology sector is also expanding, driven by artificial intelligence (AI) and India’s role as a global technology services provider. Finally, India has huge catch-up potential: Its per-capita income is one-fifth of China's, meaning it can generate economic momentum regardless of global economic conditions. In our view India may offer attractive diversification benefits for investors[6].

How to invest in India?

The following Xtrackers ETFs give you access to the Indian market . As of March 1st 2024, the annual all-in fee (TER) for both ETFs has been reduced:

Fund ISIN TER – old TER – new
India Government Bond UCITS ETF 1C IE000QVYFUT7 0.38% 0,33%
MSCI India Swap UCITS ETF 1C LU0514695187 0.75% 0,19%

Things to bear in mind when investing in India:

Exposure to emerging markets generally entails greater risks than exposure to well-developed markets, including potentially significant legal, economic and political risks. Of course, given India’s recent equity markets performance, there is considerable scope for volatility. Identifying the perfect entry point is anything but easy. Also, in terms of the economy, India's further rise is likely to be volatile and somewhat rocky. Not least because some of the longer-term challenges persist and will take more time to resolve. For example, the education system, especially at the primary level, needs to be improved. The high level of youth unemployment and still excessive bureaucracy pose additional challenges.

Glossary

MSCI India Total Return Net Index

The MSCI India Total Return Net Index aims to reflect the performance of the following market:

  • Large and mid-cap companies listed in India
  • Covers approximately 85% of free-float market capitalisation
  • Weighted by free-float adjusted market capitalisation
  • Reviewed on a quarterly basis

Additional information on the index, selection and weighting methodology is available at https://www.msci.com

MSCI World Net Return Index

The MSCI World Net Return Index aims to reflect the performance of the following market:

  • Large and mid-cap companies from global developed markets
  • Covers approximately 85% of free-float market capitalisation
  • Weighted by free-float adjusted market capitalisation
  • Reviewed on a quarterly basis

Additional information on the index, selection and weighting methodology is available at https://www.msci.com

MSCI AC Asia ex Japan Total Net Return Index

The MSCI AC Asia ex Japan Total Net Return Index aims to reflect the performance of the following market:

  • Large and mid-cap companies from Asian countries, excluding Japan,
  • Weighted by free-float adjusted market capitalisation
  • Reviewed on a quarterly basis

Additional information on the index, selection and weighting methodology is available at https://www.msci.com.

MSCI Emerging Markets Net Return Index

The MSCI Emerging Markets Net Return Index aims to reflect the performance of the following market:

  • Large and mid-cap companies from Global Emerging Markets
  • Covers approximately 85% of free-float market capitalisation
  • Weighted by free-float adjusted market capitalisation
  • Reviewed on a quarterly basis

Additional information on the index, selection and weighting methodology is available at https://www.msci.com

MSCI China TRN-Index

The MSCI China TRN-Index aims to reflect the performance of the following market:

  • Large and mid-cap Chinese companies across A Shares, H Shares, B Shares, Red Chips, P Chips and foreign listings
  • Covers approximately 85% of free-float market capitalisation
  • Weighted by free-float adjusted market capitalisation
  • Reviewed on a quarterly basis

Additional information on the index, selection and weighting methodology is available at https://www.msci.com

Source: MSCI Inc. As of: March 2024.

1. Forecasts are not a reliable indicator of future performance. Forecasts are based on assumptions, estimates, views and hypothetical models or analyses, which might prove inaccurate or incorrect.

2. Note: the mentioned indices’ key features are described in the glossary. Source: S&P Dow Jones Indices. As of: March 2024. Source: DWS Investment GmbH as of: Feb 22, 2024.

3. All calculated in Indian rupees terms. Source: Bloomberg Finance L.P. as of: Feb 16, 2024.

4. Bloomberg Intelligence as of 16th January 2024

5. World Bank estimates based on the age distribution from United Nations Population Division's World Population Prospects: 2022 Revision

6. Sources: Euromonitor, World Bank, ILO, UNIDO, DWS Investment GmbH as of October 1, 2023

All statements of opinion reflect the current assessment, which may change without prior notice. Forecasts are based on assumptions, estimates, opinions and hypothetical models or analyses that may prove to be incorrect or inaccurate.

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