11.12.2014

 

Investing in Indian equity and bond markets, the WIOF India Performance Fund offers the chance to invest in one of the fastest-growing economies in the world led by a government whose zeal for reform has boosted confidence in the country’s economic future both at home and abroad. The Fund was given a 5-star rating by Morningstar international fund ratings agency for performance over three years.

WHY INDIA?

Over the last decade investors have become increasingly aware of India’s potential. Already the third largest economy in the world in purchasing power parity (PPP) terms, economists have for years been pointing out the strong fundamentals underpinning its growth. These include an expanding and increasingly affluent middle class driving domestic consumption; positive demographic and employment trends - a total available workforce of 750 million people and 13 million entering India’s urban workforce each year – as well as, among others, plans for development of financial markets and a focus on infrastructure projects.

But following recent elections and the appointment of reform-championing Narendra Modi as Prime Minister, India has become one of the world’s most exciting investment destinations: the economy is set for a transformation and local stock markets are being tipped for strong, long-term gains as investment flows into the country, confidence in India’s economic future rises and companies benefit from growth.

The positive changes Modi’s election win is expected to bring include:

  • India’s USD1.5tn equities market has in recent years been largely propped up by exporters. But since Modi’s election victory, confidence in the economy has soared and stock markets are now getting support from banks and infrastructure companies.
  • Economic confidence will rise – Modi came to power on the back of promises to boost growth and his record is impressive having overseen an annual economic expansion of 10% in the state of Gujarat since 2001.
  • Business and conditions should improve - some equity strategists have gone as far as to describe Modi as the most pro-business, most pro-investment political leader in the world today.
  • Predicted better economic growth should feed into better results for Indian companies with analysts predicting a number of years of positive earnings revisions ahead.

 

Indeed, the potential has already been recognised internationally with international ratings agency Standard & Poor’s having raised India’s credit rating outlook to stable from negative just a few months after his election.

 

HOME GROWTH

One of the most encouraging characteristics of India’s economic growth is the role domestic demand is playing, and will play, in driving the economy. While some other emerging markets rely on exports as their main engine of growth, the potential for India’s domestic market is huge. By 2030, India is predicted to surpass China as the world’s most populous country, with 1.5 billion people. India’s middle class is also expected to be larger than that of both the United States and China in the same year, accounting for 23 percent of middle-class spending globally.

 

Meanwhile, India’s demographic development is one of its biggest economic advantages. It has one of the world’s youngest populations with a median age of 25 years while 60% of the population is of working age (between 15 and 64) and its demographic profile is similar to that of the US in the baby boomer era and China in the 1990’s, suggesting India will soon witness a huge structural spurt in consumption growth as those countries did.

 

As Umesh Gupta, Fund Manager at Reliance Wealth Management and portfolio manager for the WIOF India Performance Fund, explains: “India is clearly a domestic demand growth story and with low dependence on exports is expected to do better than many other markets in the Asian region, given the current global challenges for growth.”

MARKET GAINS

India’s equity market offers greater stability than those of some other emerging markets because of its lower dependence on commodities. Two of the country’s most important indexes, the Sensex and Nifty gauges, performed well in 2013 – the former gaining 9.0% for the year and the latter 6.8%. And performance has been good this year too. The Sensex was up 34% while the Nifty had gained 35% YTD as of 3.11.2014. The mood among international investors is increasingly bullish. Foreign investors boosted local stock holdings by USD13.8bn over the first nine months of the year. Some analysts believe that the recent stock market gains in the wake of Modi’s election victory are just the start and that the Indian stock market could be 100% higher than it is today before the next elections are held in 2019.

 

OUTLOOK

In the near to medium term the government’s decisive mandate is extremely positive for equity markets. The Indian stock market is well poised for a good bull run. Equity, like other asset classes, goes through cycles and Indian stock markets have delivered modest returns over the last six years. Therefore, a change should be due and the next four to five years could be extremely good for corporate India. Furthermore, domestic, foreign and retail investors are still underinvested in equity as an asset class and will be looking to invest in the event of any corrections. Meanwhile, the International Monetary Fund (IMF) recently upgraded growth forecasts for the country and predicted improving export competitiveness and, importantly, the implementation of recently approved investment projects.

 

INVESTMENT ADVISER

The Fund’s investment adviser is Reliance Wealth Management Ltd. Part of the Reliance Anil Dhirubhai Ambani Group, Reliance Wealth Management Ltd is a niche provider of investment products to institutions, investment companies and high net-worth individuals in India and overseas. Its primary focus is on creating custom equity portfolios as segregated mandates and delivering value to clients.

 

 

IMPORTANT NOTE: This report has been prepared for information only, and it does not represent an offer to purchase or subscribe to shares. World Investment Opportunities Funds (“WIOF”) is registered on the official list of collective investment undertakings pursuant to part I of the Luxembourg law of 17 December 2010 on collective investment undertakings as an open-ended investment company. WIOF believes that the information is correct at the date of production while obtained from carefully selected sources considered to be reliable. No warranty or representation is given to this effect and no liability can be assumed for the correctness or accuracy of the given information which may be subject to change at any time, without notice. Past performance provides neither a guarantee, nor an indication of future performance. Value of the shares and return they generate can fall as well as rise. Currency fluctuations, either up or down, may also affect value of the investment. Due to continuing market volatility and exchange rate fluctuations, the performance may be subject to significant changes over a short-term period. Investors should be aware that shares in the financial instruments entail investment risks, including the possible loss of the invested capital. Performance is usually calculated on the basis of the relevant NAV unless stated otherwise. Performance shown does not take account of any fees and costs associated with subscribing or redeeming shares. It is assumed that all dividends were reinvested. WIOF prospectus is available and may be obtained through www.1cornhill.com. Before investing in any WIOF Sub-fund(s) investors should contact their financial adviser/legal adviser/tax adviser and refer to all relevant documents relating to the WIOF and its particular Sub-fund(s), such as the latest annual report and prospectus that specify the particular risks associated with the Sub-fund, together with any specific restrictions applying, and the basis of dealing. In the event investors choose not to seek advice from a financial adviser/legal adviser/tax adviser, they should consider whether the WIOF is a suitable investment for them.