Insurance CIO: India offers best structural growth plays, good alternative to China

India has several economic tailwinds that make it a highly attractive investment destination and a suitable growth market alternative to China, according to the CIO of an Indian life insurance company.

“The investment landscape in India is positive as the country is seeing the best structural growth opportunity with prudently managed fiscal and monetary policies coupled with strong on-going domestic capex, and benefits from China+1 [not investing only in China and diversifying into other markets] further supporting manufacturing growth,” Poonam Tandon, CIO of IndiaFirst Life Insurance, told AsianInvestor.

IndiaFirst Life Insurance Company, headquartered in Mumbai, is a joint venture between two large state-owned banks, Bank of Baroda and Union Bank of India, as well as Carmel Point Investments India, managed by private equity funds run by Warburg Pincus.

It had assets under management of about $2.7 billion at the end of March 2023.

Tandon’s view is shared by other entities: India offers the best structural growth story in the region yet continues to be overlooked by some global investors, research issued in early March from UBS Global Wealth Management noted.

“We expect real annual GDP growth in excess of 6% over the next five years, and corporate profit growth in the low-to-mid teens, likely supported by policy continuity after this year’s elections,” it said.

IMPROVING CONSUMPTION, BALANCE SHEETS

Other favourable factors include sustained corporate earnings growth, a re-leveraging of corporate India’s balance sheet and rise in consumption, said Tandon.

Indian companies have effectively managed their balance sheets over the past 10 years, and the debt-equity ratio of Indian corporates is at an all-time low of around 0.5 times, a March 5 note from Invesco said.

Earnings for companies are growing strongly with earnings per share rising by 22% on average over the past five years, it said, adding that earnings are currently experiencing a 'significant cyclical uptrend.'

The Nifty 50, a widely-tracked equity index, also gained 20% in 2023 and Tandon is optimistic about favourable risk-adjusted returns in 2024.

“…a re-election of the current government will likely continue the political and economic momentum,” Tandon added.

India’s general election during April-May points toward continuity, according to UBS, which said it seems plausible that Prime Minister Narendra Modi’s BJP party could even secure a majority by itself and reduce reliance on coalition partners.

Domestic investment flows are also expected to be robust as long-term savings platforms such as the National Pension System and Employees' Provident Fund Organisation consider higher equity allocations, in turn, reducing dependence on foreign investment flows.

“The combination of above factors we feel India is one of the best investment markets in the world and also a good alternative growth market to China where growth is expected to slow down,” Tandon said.

BONDS BOOST

Indian bond markets have also turned appealing to international investors.

India will be included in the JP Morgan Government Bond Index - emerging markets indices, which is expected to trigger up to $30 billion in international inflows.

Starting in June, Indian bonds will be added by one percentage every month to the index until the maximum weight of 10% is achieved by April 2025.

That will trigger sizeable passive index bond flows and is a significant technical tailwind for the Indian government bond market, one of the largest and most liquid in Asia, according to institutional investors.

“We believe investors are already pre-positioning themselves before inclusion, so we don’t think there will be any significant impact on the yields as they have already softened factoring this event,” Tandon said.

“Having said that, with the inclusion, investors’ base will widen, and the bonds will likely become more liquid with lower risk perception and greater transparency in the other markets of the world,” she added.

India bonds saw their tenth and biggest monthly inflow in January at $2.5 billion, according to Bank of America Securities research.

The JP Morgan bond indices inclusion will also “open the possibility of inclusion in other major global indices, which is positive in the long run,” said Tandon.

Indian bonds are a candidate for inclusion into the markedly larger Bloomberg Global Aggregate Index as well.