Investing In India: How Does It Fit Into The Jigsaw Puzzle Of A Global Portfolio

Investment opportunities in emerging markets are something global investors simply cannot ignore because they give the much-needed kicker to the portfolio.

Investment Rationale

The strategic rationale for investing in emerging markets like India can be summarized as under:

• High long-term growth rates than developed markets and more favorable demographic profiles
• Lower levels of government indebtedness compared to most developed markets
• Emerging economies are taking a bigger share of the global purchasing power
• Portfolio diversification
• Attractive return potential

Not To Be Painted With The Same Brush

Investing in India can throw up idiosyncratic risks, which means that index returns do not always show the true picture. 

Nifty generated barely a 10% CAGR return in the last 10 years in INR terms, which would come down to mid-single digits considering the currency depreciation. So, quite clearly investing in a broader index like Nifty is not attractive (dollar returns of 5-6%) as the returns are not commensurate with the risks of investing in an emerging market.

But the catch here is that index returns may continue to be lackluster. At the same time, bottom-up stock-picking can generate multi-bagger returns if the investor is able to identify business models where revenues are growing at a faster pace. In addition to this, these business models should have pricing power that ultimately leads to higher profit margins.

A good fund manager/Investment advisor always adds value more so in the case of markets like India because of information asymmetry and potential mispricing of securities just ahead of and after important economic/corporate events.

It is important to stay away from the so-called ‘Value-traps’ in India. Some names, especially PSUs have been perennially beaten down, but the low valuation is due to valid reasons. There are other stocks that command a premium but have been able to justify lofty valuations because of consistent and above-normal growth. The focus should be ‘GARP’ (Growth at a reasonable price).

Below are a select few Indian equity names that have delivered handsome returns in dollar terms over the last 10 years –