Emerging market equities: India on the ascendency
Portfolio Manager Daniel Graña explains why India’s favorable demographics, pro-growth policies, and innovative companies all contribute to the country being among the most promising future sources of excess returns within emerging market (EM) equities.
2 minute read
- Demographics, corporations’ desire to diversify supply chains, and geopolitics are causing investors to recalibrate their EM equities allocations.
- India’s young work force, pro-growth economic policies, and strong equities culture are characteristics that should command EM investors’ attention.
- A wave of capital investment, along with innovative products and services aimed at solving EM-specific frictions, have the potential to unlock much of India’s unrealized productivity.
As has been the case with other asset classes, the investment environment for emerging market (EM) equities has evolved considerably over the past few years. In the wake of the COVID-19 pandemic, the trend toward deglobalization has accelerated. Companies are now seeking to reconfigure supply chains and the cost of capital has reset to levels harkening back to the 1990s. All the while, the inescapable forces of demographics march on and geopolitical tensions have added an additional layer of complexity to allocating capital.
EM equities investors must process how these shifts will impact corporate earnings growth and, thus, returns for the asset class. Many of the past decade’s return drivers are waning, especially as China’s central government prioritizes national service at the expense of profitability within the private sector and authorities struggle to identify the right mix of contributors to economic growth. The confluence of these developments has led investors to seek alternative sources of returns within the EM equities universe. One potential destination that, in our view, is rightfully garnering investors’ attention is Asia’s other giant economy: India.
The subcontinent’s dominant economy meets many of the criteria that we consider conducive for generating excess returns over a multi-year horizon. India has favorable demographics, with the benefits inherent in a young workforce magnified by the trend toward urbanization. The country is rapidly improving its historically subpar infrastructure with the aim of unlocking productivity. Furthermore, the government is championing a reform agenda that seeks to increase the private sector’s role in propelling economic growth.