• Key drivers for India’s economic growth include the consumption potential from India’s growing middle class, the post-Covid recovery and digitalisation
• The growing strength of the manufacturing sector is another encouraging sign for the long-term strength of Indian companies
• While India is not immune to the problems facing the global economy, it looks more resilient.

India and China are the twin behemoths of the Asian economy, but China has long garnered more of the headlines. However, with its favourable demographics, rising income levels and reform-minded government, India may be emerging from its shadow. Today, there is real momentum to India’s growth, providing a favourable backdrop for companies.

This growth has a number of sources: the first is the consumer. The chief executive of Hindustan Unilever recently said India will overtake the US to become the group’s most valuable market. It speaks to a wider truth about the growing might of the Indian consumer.

India’s population of 1.4 billion people has recently hit the key income level of $2,200 per capita, which can often be a tipping point for an economy to grow faster. The International Monetary Fund (IMF) estimates that per capita income will grow to $3,769 by 2027, fuelling consumer spending. This strong backdrop should help consumer goods companies defy the global slowdown in spending. In the Aberdeen New India Investment Trust, we have been adding to consumer staples companies, including Hindustan Unilever.

At a time when China is still wrestling with Covid shutdowns and disruption to key industries, India’s has fully reopened. Urban consumption spending is back to pre-Covid levels and banks are willing to lend again.  

Manufacturing

The growing strength of the manufacturing sector is another encouraging sign for the long-term strength of Indian companies. Capital expenditure is growing, helping to revive a part of the economy that had previously been stagnant, giving balance to India’s growth and making it more resilient.

More global companies are setting up production facilities in India. For example, Apple recently announced that it would start to assemble its iPhone 14 in India as it shifts some production away from China. We believe this might become a broader trend, with the country an increasing beneficiary of the move by global companies to diversify their supply chains. This brings new skills and manufacturing capability to India.

Digitalisation

India is also pulling ahead on digitalisation. The country’s internet usage has expanded significantly during the pandemic, and today, almost half the country is online. That makes it the second largest online market in the world after China. This growth is expected to continue, with increasing adoption seen in rural India.

Historically, India hasn’t the same large universe of listed internet companies as there is in China and has instead tended to be characterised by technology services companies, such as Tata Consultancy Services and Infosys. However, the technology universe has grown significantly after a slew of IPO listings in 2021, bringing in new options such as Info Edge, Nykaa and Policy Bazaar.

Resilience

These three factors may help explain why India has been relatively resilient this year, in spite of global economic turmoil. The Indian economy is set to grow by 7.4% in 2022 and by 6.1% in 2023, almost double the rate of China.

India isn’t immune to the pressures facing the global economy. It has inflationary pressures, particularly from imported commodities. This has hiked input costs for companies as it has across the globe. Wage inflation has also picked up. Recent commodity price drops have nevertheless alleviated some of the pressures.

However, it is worth noting that India has gone through many periods of higher inflation and higher interest rates. Companies are used to dealing with this, having been through many cycles. They are inherently resilient. It helps that India has a stable political regime and the government continues to enact reforms. India has never had a currency crisis or a sovereign default. This creates a predictability for Indian companies that isn’t always there in a command economy such as China. This stability extends to the governance of Indian companies, which are generally well-run and with good governance procedures.

We believe India has more of its growth ahead of it than other emerging market peers, including China. Its stock market is well-balanced, with no individual sector dominating. It has been justifiably resilient this year and should be a powerful source of growth at a time when growth is scarce. We believe it merits its place in portfolio every bit as much as China.

Companies selected for illustrative purposes only to demonstrate abrdns’ investment management style and not as an indication of performance.

Important information

Risk factors you should consider prior to investing:

• The value of investments and the income from them can fall and investors may get back less than the amount invested.
• Past performance is not a guide to future results.
• Investment in the Company may not be appropriate for investors who plan to withdraw their money within 5 years.
• The Company may borrow to finance further investment (gearing). The use of gearing is likely to lead to volatility in the Net Asset Value (NAV) meaning that any movement in the value of the company’s assets will result in a magnified movement in the NAV.
• The Company may accumulate investment positions which represent more than normal trading volumes which may make it difficult to realise investments and may lead to volatility in the market price of the Company’s shares.
• Movements in exchange rates will impact on both the level of income received and the capital value of your investment.
• There is no guarantee that the market price of the Company’s shares will fully reflect their underlying Net Asset Value.
• As with all stock exchange investments the value of the Company’s shares purchased will immediately fall by the difference between the buying and selling prices, the bid-offer spread. If trading volumes fall, the bid-offer spread can widen.
• The Company invests in emerging markets which tend to be more volatile than mature markets and the value of your investment could move sharply up or down.
• Specialist funds which invest in small markets or sectors of industry are likely to be more volatile than more diversified trusts.
• Yields are estimated figures and may fluctuate, there are no guarantees that future dividends will match or exceed historic dividends and certain investors may be subject to further tax on dividends.

Other important information:

Issued by Aberdeen Asset Managers Limited which is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Registered Office: 10 Queen’s Terrace, Aberdeen AB10 1XL. Registered in Scotland No. 108419. An investment trust should be considered only as part of a balanced portfolio. Under no circumstances should this information be considered as an offer or solicitation to deal in investments.

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