Are you hearing a lot more chatter around India? And if yes, what are you telling investors about how they should be looking at India as a potential investment opportunity?
Alessia Berardi: Yes, you are perfectly right. Since the elections, there has been increasing attention on how the government would have reacted to the election results. We had the Budget last week and for investors that has been a sort of confirmation of the government’s great commitment to fiscal consolidation and at the same time the continuation of the capex push allocating spending of the part coming from the RBI dividend. So, it has been a sort of reassurance for investors after the election results.
How are the investors looking at the valuation versus growth conundrum because of course growth is something that India has in ample amounts, but equity market valuations are a bit rich even when compared with historic averages. Is that a bit of an impediment to investment or are people willing to pay a higher price for growth right now?
Alessia Berardi: Yes, this is a very important point. Investors need to reconcile the high valuation of the Indian market with the high potential growth in India. The valuation, I would say, did not deter foreign investors from entering the market as we have seen since last year.
India is a country in transformation. We need to continue to monitor growth dynamics and regulatory changes. Investors need to pick companies that are more competitive and companies that can leverage the most on the Indian transformation. So, maintaining a mindful approach but constructive towards the Indian equity regardless of the high valuation.
What are you suggesting for investors to bet within India? Is it the demographics which is favourable and hence consumption is a big theme to play? Is it the fact that manufacturing is coming up in India and that the entire China plus one strategy is working out? Which are those big themes that you are watching out for when investing in India right now?
Alessia Berardi: I would say that it is a combination of what you said. I will wrap up the message by saying that the investors need to look at India’s growth because that is translating into earnings, which are very important for equity investors.
Another important theme is the infrastructure gap catch-up by the government which I think is quite significant. The other point is financial stability. India has taken huge steps in improving on external vulnerability and even fiscal agility. These two aspects are moving in the right direction. On top of that, I would say that Indian companies have a quite high ability to adapt to a fast-changing world and that has to do with digital innovation, where companies in India are at the forefront. So, there are different sets of aspects that are interesting for investors.How has the overall pace of investments been changing in India? How has the overall inflows into India moved? Are there any specific stocks or sectors that you have either bought into or are looking at or recommending investment into?
Alessia Berardi: The Indian equity performance has been very much driven by domestic investors and that has to do with the financials that the country is going through. But to be honest, since 2023, we have been seeing the foreign investors catching up. Flows in the Indian equity market from global investors are reflected in the fixed-income markets.
In the equity markets, the Budget has been again highlighting some medium-term priorities and these are important for investors. So, we will see probably a revamp of manufacturing and services. Labour-intensive or manufacturing services have been neglected in the past and now want to be at the forefront in terms of innovation and technological transformation. Tech is another important sector to consider. We have a strong flow of IPOs in specific sectors that are strategic and allowing India to transform itself.
We are talking about a lot of positives that are working out for India. What do you think could be that risk factor or something that is a key monitorable for you that you are watching out for, that could potentially derail the India growth story?
Alessia Berardi: Looking at the equity markets, I would say that the current high valuations are attracting a quite important wave of IPOs. There is a risk of equity oversupply. When there are high valuation, there is a sort of exit from the private equity. There is a willingness to raise more capital at more attractive prices.
So, we need to balance and be mindful of the risk of oversupply in that because it is a typical phenomenon during bull markets but if the markets change trend or there is a downtrend, that is again a risk. It becomes a risk to monitor and that is more likely to be able to balance. On the economic side, India’s growth potential is increasing. It is possible to see some moderation in terms of growth. India in any case is one of the fastest growing countries in emerging markets and the world.