Why we believe in india

There are exciting opportunities for investing in India and we are extremely positive about the country's long-term outlook, despite short-term concerns of inflation and a weak political environment. Attractive valuations, a buoyant domestic market and a resilient rural economy mean it makes sense to reappraise the potential for long-term outperformance.

Despite equity markets underperforming relative to the rest of Asia, we expect India's economic growth and corporate earnings to outperform the broader Asian region over a three- to five-year horizon. Overall we see opportunities in the domestically driven economy, which benefits from a fast-growing middle class. Indeed, India's rural areas (about 70 per cent of the population) are resilient and able to maintain income growth despite the uncertain global/external environment.

Overall, investing in structural growth companies (versus policy-driven/cyclical stocks) remains our core investment strategy. We believe we have comfortably positioned our portfolios in high-quality Indian companies whose business models we understand and which look better prepared to thrive in the current environment. While near-term direction remains inextricably linked to the global macroenvironment, we still believe in the Indian secular bull market, with both economic growth and corporate earnings likely to outperform Asia over the medium term. It makes sense to revisit Indian equities now when pricing has weakened. Given the fall in Indian equity markets this year, India is now trading at 14x forward price-to-earnings (PE), roughly in line with its ten-year average.

At a stock level, good companies are being priced at single price-to-earnings multiples or slightly below their book value. Valuations remain attractive on a price-to-book (PB) basis where India is again trading below its ten-year average. We have rebuilt positions in the telecom sector, favouring companies such as Bharti Airtel, as the competitive landscape has improved for this industry. Following recent company visits in India, we note an easing of steel and import prices. They expect to see price de-acceleration going forward. We are hearing this directly from companies now, and we should soon see this reflected in CPI numbers.