India Strategies for Maximizing Returns

India is a long-term structural investment story but it isn’t cheap. To get the most from India we believe investors should adopt a selective approach in order to stay aligned with the country’s long-term value creation while not being distracted or paying too much for shorter-term, lower-growth opportunities.

By focusing on sectors like industrials and manufacturing that are at the forefront of India’s structural momentum, investors can position their portfolios for potential outperformance over time. Quality and fundamentals are paramount. Evaluating company characteristics, such as profit growth, cash flow and business model, can help identify promising investment opportunities that are aligned with India's economic growth trajectory.

Growth at the right price

India has delivered for equity investors in recent years and many stocks and sectors now command elevated prices. In fact, over the last 10 years, multiples on Indian equites have been at a 57% premium on average to emerging markets.¹ So it’s crucial to assess company earnings projections against earnings multiples before committing to a stock. Investors need to be sure that a company’s fundamentals and growth potential justify its price tag.

While valuations are elevated across many stocks and sectors in India, we would also say that the robust economic growth underpinning India's equity markets means that there are choices available for active investors. For example, if we sell a holding because we believe its growth potential is too out of line with its valuation we know there are other growth opportunities in the market with better pricing that we can look to.

Get the best from India

Tracking an index may have been an effective investment strategy in recent years but we don’t necessarily think all boats will continue to rise in India. Equity benchmarks, in our view, increasingly reflect the “older India,” one that is more rooted in commodities and consumer staples. In contrast, newer areas of growth, like industrials and real estate, are under represented by benchmarks, we believe. As active managers, we can give these sectors a greater focus in our portfolios while still being cognizant of companies and sectors that are benefiting more generally from India’s structural growth like health care and utilities.

Source: ¹CLSA, as of Feb. 27, 2024