31 March 2022
OFFSHORE SUPPLEMENT
Invest in India: Why SA investors should consider adding this emerging market to their portfolio KINGSLEY WILLIAMS Chief Investment Officer at Satrix Investments
T
he imminent launch of a Satrix India-focused Exchange-traded Fund (ETF) will allow South African investors to get meaningful exposure to one of the world’s most promising emerging markets, India. The fund, which will track the MSCI India NET TR Index, will give investors direct access to the Indian economy at a time when the country is poised to outperform emerging market peers like Brazil, China, Russia and South Africa. “Emerging markets have always fascinated local investors because they offer the potential for higher growth as increasing portions of those populations move into the formal economy, thereby gaining access to a wider variety of goods and services,” said Kingsley Williams, Chief Investment Officer at Satrix Investments. He was commenting during a Satrix IndexMore event held under the tagline ‘India, the next giant’. IndexMore is an educational collaboration between Satrix (South Africa’s leading index manager) and BlackRock’s iShares. There is a growing upswell among global fund managers that India could take over from China as the main driver of emerging market returns in coming years. According to Laura Cooper, Director at Blackrock, India’s economy is set to outperform that of China by two times in the next two years. IMF has forecast India’s GDP growth at 9% in 2022 and 7.1% in 2023, placing India at the top of the table among large emerging market economies. Cooper dismissed concerns over the impact of inflation and ongoing pandemic uncertainty on India’s growth prospects. “For as long as inflation remains contained, we expect conditions to be supportive of the IMF’s growth outlook,” she said. As for the pandemic, “With more than half of
the adult population fully vaccinated, the economy does remain relatively resilient in the face of further waves.” The Indian government has received widespread praise for its fiscal and monetary policy response during the pandemic, with its 2023 budget supporting infrastructurebacked economic and employment growth. Much of India’s promise stems from its growing share of international trade. “India is becoming more impactful for global growth through its trade linkages and global supply chain, but the key point is around its favourable demographics,” said Cooper. Not only will India overtake China as the world’s most populous country in coming years, but it is forecast that some five billion people will enter the middle-income segment in the next decade. India also boasts a median age of under 30, with 375 million people in the Generation Z sub-set compared to just 250 million in China. Global investors seem to have cottoned on to India’s prospects, with the MSCI India Index outperforming the MSCI Emerging Markets Index by 28% in 2021 and the MSCI World Index by 7%. One of the key drivers of this outperformance is that the ‘digital first’ approach adopted by many countries in response to the pandemic has significantly benefited India’s economy, explained Tom Husmann, an Equity and Commodity
Product Strategist in the iShares EMEA Product Strategy Team. “From a long-term strategic growth perspective, India has a great deal of exposure to the megatrends that Blackrock believes are shaping the next era of investing,” he said. These megatrends include climate change and resource scarcity, demographics and social change, emerging global wealth and technology breakthroughs. India’s technology breakthrough is illustrated by no fewer than 44 local startups reaching market capitalisations of over $1bn during 2021, from a staggering 61 000 start-up businesses countrywide. “India has the third-largest start-up ecosystem after the US and China, making them stand out from a technology breakthrough megatrend perspective,” said Husmann. Another positive is that India is making strong progress in the renewable energy fields. It boasts the world’s third-largest renewable energy sector and ranks fifth for solar power. And there are plans to invest another $1tr in solar projects as the country works towards the net-zero carbon emissions targets set at COP26. Fotios Kassianidis, an executive director of Indexed Investments and Solutions at MSCI Inc, said that the MSCI India Index offers investors “well-diversified exposure across different sectors, from energy to materials to utilities”. More importantly, 20%
“Emerging markets have always fascinated local investors because they offer the potential for higher growth”
“India is becoming more impactful for global growth through its trade linkages and global supply chain” of the MSCI India Index derives from the technology sector. “Software and services businesses within the emerging market block have enjoyed a consistent and smooth performance premium compared to the rest of the market [during times of crisis],” Kassianidis said. The conclusion is that the premium paid for this index, as measured by its price-to-book ratio, is more than offset by its weighting to software and services companies within the information technology sector. How can South African investors get exposure to India? The good news is that Satrix is in the middle of an initial public offering (IPO) for an ETF that will track the MSCI India NET TR Index. Following the product launch, investors will be able to buy and sell exposure to India on an as-and-when basis. “We remain at the forefront of enabling South African investors to get access to an increasing array of investment opportunities across the global investment landscape,” concluded Williams. “The themes we have discussed today illustrate the relevance of our latest product launch to track the MSCI India Index.”
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