Pro-business policies
Company efforts to streamline and achieve higher return on equity are being aided by a more business-friendly government.
From infrastructure, manufacturing to tax and banking, Prime Minister Narendra Modi has delivered a swathe of often radical policies in an attempt to modernise the economy.
Not everything has worked effectively. Take the demonetisation initiative of 2016 – the government gave its citizens just four hours to withdraw high value banknotes from circulation, plunging the country into chaos. In recent years, however, we have seen improvements in the policy climate.
Recent market-oriented reforms and regulatory interventions have helped improve transparency and credibility of fiscal and monetary policy, boosting the economy's more resilient to external shocks. At the same time, policymakers are making it easier for foreigners to invest in the country.
For example, the government has recently introduced legislation allowing more than 50 per cent foreign ownership of insurance and defence companies and has also ended retrospective taxation of cross-border investments.
We expect the policy environment to remain favourable for companies and investors in the medium term, especially as Modi is keen to avoid any political upset before the 2024 general election.
What is more, we expect the Indian government to roll out policies that will help it capitalise on its “non-aligned” position amid today’s geopolitical conflicts.
This should help the country advance its trade and economic interests, particularly in strategically important sectors such as energy, defence, technology and pharmaceuticals.
Indian equities received substantial foreign inflows in 2023, with the market attracting net USD16 billion so far this year – representing more than half of total net inflows into global stocks.7
Despite this, international allocations to the country is low. Foreign investors' net positioning has remained persistently below the weighting of MSCI Emerging Market benchmark index in the past two years.8
But that should soon change. The argument for making Indian stocks a core allocation within a global equity portfolio is as strong as it has ever been.
India Inc will offer a rich hunting ground for international investors looking to diversify their holdings.
India Inc will offer a rich hunting ground for international investors looking to diversify their holdings.
Its stocks should therefore be a core and growing allocation with a global equity portfolio.