As India’s Prime Minister, Narendra Modi begins his US visit, Abhinav Mehra (pictured), co-manager of the Chikara Indian subcontinent fund, comments on the country’s displacement of China as the largest MSCI EM market and the economy’s future growth prospects saying:
“Modi’s visit to the US this week couldn’t have come at a better time for India with recent news that the country has displaced China as the largest MSCI EM market. Its weight in MSCI AC World IMI index is now 2.4% vs China at 2.2%.When launching our India strategy in 2018, it was just c.1% of MSCI’s global benchmark, and it was our belief that because of its less correlated domestically driven growth path this would increase over time and made the case for a structural allocation. According to Morgan Stanley, India’s nominal GDP growth rate is more than 3 times that of China’s, creating an acute difference in operating and earnings growth backdrop for companies between the two countries.
“In our view, policy reforms, favourable demographics, low debt and higher tax takes have all driven the wider market growth. Surging foreign direct investment and the government’s focus on manufacturing has also contributed greatly. As the Indian economy continues to grow, at an annual rate of c.7% currently, and with its market cap now over $5.5 tn (overtaking the UK at c.$3.2tn) we believe the need for a dedicated India allocation, especially one benefiting disproportionately from domestic growth, will continue to rise.”
