India Is on a Tear
Kiplinger's Personal Finance|February 2022
Massive modernization presents opportunities for investors.
By Nellie S. Huang, Photography by Istockphoto.com

“ADVENTURES DO OCCUR, BUT NOT punctually,” writes E.M. Forster in A Passage to India. In other words, exciting things happen in India, but a little patience is required. In recent years, however, it seems events have sped up in the Asian subcontinent, and that’s fueling a stock market rally.

Government reforms initiated a few years ago have finally started to pay off. The changes, plus a rebound in economic activity, have lifted India’s stocks. The MSCI India index, which tracks mostly large companies, climbed 32.6% over the past 12 months, its best showing in four years and well ahead of the 0.9% rise in the developing country-stock index, MSCI Emerging Markets. Indian small-company stocks gained even more: 53.5% (returns are through December 3).

The rally is far from over, say analysts and fund managers who invest in the country. Volatility is to be expected, of course; the new COVID-19 variant, for instance, is a risk. But many short- and long-term factors could propel growth in India for years to come. We’ll explain the key drivers and point you toward good funds that offer the best exposure.

A cyclical rebound. Interest rates have been falling, thanks in part to cuts geared to stimulate the pandemic stricken economy. Short-term lending rates, currently 3.8%, are down from more than 8% in 2012. That has led to a burst of economic activity. “After abysmal conditions over the past 10 years, real estate as a sector has begun to do well,” says Peeyush Mittal, manager of Matthews India fund. Low rates have pushed many Indian consumers, typically big savers, to invest in stocks, too. Individual-investor participation in the stock market has nearly doubled in the past 12 to 18 months, and that’s also driving gains, says Mittal.

On top of that, Indian prime minister Narendra Modi has promised to spend $1.4 trillion on infrastructure, a plan that will create jobs and stimulate economic activity for the next 12 to 18 months, says Mittal.

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