Prashant Kothari, senior investment manager, emerging equities team at Pictet Asset Management, this week shares his views on why Indian stocks should form a bigger part of global stock portfolios.

Pictet Asset Management is bullish on India's prospects, and headline news appears to underscore that optimism. 

From replacing the UK as the world’s fifth largest economy to being the first country to land a spacecraft on the south pole of the moon, and the first country in the southern hemisphere to host a G20 summit meeting, Prashant Kothari at the Swiss firm, thinks India's equity market is poised to outpace that of its emerging market peers.

“In isolation, any one of these achievements would be momentous. But together, they are a powerful reminder of the influence India now commands on the world’s economic and geopolitical stage,” Kothari said in a commentary.

Kothari thinks investors should be pay attention to India. “India’s stock market hit an all-time high valuation of $3.8 trillion in September and Indian equities have been outpacing their counterparts in emerging markets for some time. But they look set to pull away even further in the years ahead, which suggests Indian stocks should form a bigger part of global stock portfolios,” he said.

Pictet AM isn't alone in smiling on India. The rising trade tensions between the West and China, the disruptions to global supply chains from the pandemic, have encouraged a pivot to India as a major supply source. Its relatively youthful demographics, English language and law, strength in areas such as IT, and industrial growth, have combined to make the nation an attractive proposition. Reforms under the Modi administration in recent years, such as the shift towards more regular banking, have added to its allure. Among other asset managers who like India is Dina Ting, senior vice president and head of global index portfolio management at Franklin Templeton. Ting thinks India's market deserves attention. See more here. 

Fast and diverse
Kothari highlighted how the country is not only one of the fastest growing economies in the world, but also among the most diversified. “This diversity is its strength. It is one reason why the country's real GDP growth has been far less volatile than that of its emerging market peers,” he said.

“India’s diversity is a reflection of its large industrial sector, a growing consumer market and intensifying competition. This has also helped Indian companies deliver higher profits than the rest of the emerging corporate world,” he said.

“The digitalisation of India’s economy should also provide a boost to corporations’ returns on equity, as well as helping to activate rural and urban areas of the country to deepen financial inclusion. For investors, these measures enable MSMEs (micro, small and medium enterprises), responsible for 30 per cent of India’s GDP, to access credit for business expansion,” Kothari continued.

The country’s digital economy is already responsible for an estimated 22 per cent of the overall output. The rollout of 5G networks is likely to accelerate the pace of the growth in India’s digital economy, which is expected to expand six-fold in the coming years to reach $1 trillion by 2030. India now has one of the highest volumes of real-time digital payments among businesses globally, accounting for 46 per cent of global real time payments in 2022.

“In addition, Indian companies are becoming operationally and financially more disciplined. As a result of the digitalisation of the economy, a growing number of businesses that traditionally operated offline are establishing consolidated web-based platforms. This is occurring in industries as diverse as travel, food, healthcare and manufacturing,” Kothari said.

“Regulators have also introduced investor-friendly reforms to improve corporate accountability and transparency and to protect the interest of minority shareholders. The steady improvement in corporate governance should add to India's investment potential. Research shows better corporate governance helps reduce risks and improve financial performance,” Kothari said.

Moreover, recent market-oriented reforms and regulatory interventions have improved the transparency and credibility of fiscal and monetary policy, simultaneously boosting the resilience of the economy to external shocks and making it easier for foreigners to invest in the country.

“India will offer a rich hunting ground for international investors looking to diversify their holdings. Its stocks should therefore be a core and growing allocation with a global equity portfolio,” Kothari concluded.