Consider India for growth, diversification

27-Nov-2017

By Darin Tyson-Chan

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The state of India’s economy and its low correlation to the Australian equity market are two compelling reasons why investors should consider a portfolio allocation to this emerging market, according to a global fund manager.

Speaking at the recent Undiscovered Managers Showcase hosted by Evergreen Consulting and financialobserver, India Avenue Investment Management managing director Mugunthan Siva said the fund manager expected high growth rates for India during the next 20 years.

“We’ve seen in the past two decades the average of India’s GDP growth has been around 7 per cent,” he said.

Often in emerging markets GDP growth had not necessarily translated into a corresponding experience in investment markets, however Siva pointed out this was not the case with India.

“The important thing is earnings growth has actually been quite stable and strong. If I look at India’s corporate earnings growth over the past 20 years it’s averaged 13.5 per cent with a volatility of only 14 per cent,” he said.

Siva compared this to the Australian experience where earnings growth had been lower and had seen volatility of 69 per cent.

Further, the S&P 500 in the US had witnessed volatility of 57 per cent, he said.

“That tells me in a growth economy like India, yes there are going to be events where the price might slip quite dramatically, but the underlying fundamentals remain the same and are not going to change given the size of the population and the size of the opportunity,” Siva added.

“So India remains an attractive investment. There might be times when more might be invested and there might be times when you might want to hold back, but it’s broadly a market that in our view should receive some exposure from everyone’s portfolio.”

For investors in Australian shares an allocation to India made for an even more compelling argument on the grounds of diversification given the low correlation between the two markets, Siva suggested.

“With reference to Australian equities India has a very low correlation of 0.3, over rolling three-year periods, and that makes sense because it is the antithesis of a commodity driven exposure because India tends to benefit every time commodity prices are benign or falling,” he said.

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