The result puts India in a unique position of stability on the global investment front.

Around half the world will have gone to the polls in 2024, with significant elections taking place across more than 60 countries.

It’s voting on an unprecedented scale. The situation is made all the more precarious by the fact pivotal elections hang between parties with very different ideologies.

This summer we have seen a swing to the left in the UK, Germany moving to the right and a hung parliament in France. Who knows what the fallout from the US presidential election will be?

Such questions cast a huge shadow over the direction of policy and make it very difficult to make investment decisions.

In contrast, we now have visibility for at least the next four years Modi remains in power in India. The investment opportunities that emerged under the last BJP government will not only remain in place but should continue to flourish.

Here’s four we’re keeping our eyes on in particular:

1. Riding the property boom
Billions of dollars in infrastructure spending, global leading economic growth, and rising disposable income have rejuvenated property transactions. In 2023, sales of residential units in India’s seven biggest cities rose by nearly a third to their highest ever level.
House prices are also heading north after decades of stasis. Average prices in India’s top eight cities rose 10% year in Q1 2024 alone. Nationwide, they rose by 4.3% in 2023.
It’s been an excellent backdrop for India’s property developers. Godrej, for example, has been trading around record highs for much of 2024, having delivered record sales in 2023.
India is likely at the beginning of the upward side of a multi-year property cycle. With the PM prioritising “housing for all” during his campaign, and with India’s mortgage to GDP ratio remaining well below global peers, prices and sales volumes are positioned to rise.

2. Simplifying the business environment

Modi has been on a campaign of casting aside India’s legacy of excessive bureaucracy for much of the 21st Century.
We’ve seen big steps forward, with trade policies simplified, corporate governance codes reformed, and shifts towards deregulation and privatisation.

The latest, ongoing phase is one of cutting red tape on a sector-by-sector basis. Again, there have been inroads here. Coca-Cola recently announced plans to invest $1bn a year into India to capitalise on its simplified operating environment.

With Modi committing to replacing a “culture of red tape” with a “red carpet” for investors in February, we expect to see further steps forward during his current term as PM. This should have a positive impact on foreign investment and the bottom line of many domestic stocks.

3. Clearing up the courts

The number of cases caught up in India’s justice system crossed the 50-million-mark last year.
Evidently, not enough has been done to speed up the rate at which disputes are resolved. But the pace at which this is addressed through reform could be set to accelerate.

India’s chief justice called for a total revamp on the approach to dealing with the structural issues plaguing India’s courts in January.
Modi has also emphasised his belief in the need to “rethink, reimagine, and reform” legal systems during his campaign trail.

What that will involve remains to be seen. But any move towards a system where business disputes are handled in months rather than years will be a big tick in the box for foreign investors.

4. Re-evaluating the private banks
Under Modi, India’s private banks have been benefitting from increasing general demand for financial services among a growing, wealthier population. They’ve also been consolidating an increasingly large share of the Indian market from their public sector peers.

HDFC Bank, India’s largest private sector bank by assets, delivered a 37% year-on-year growth in profits in Q4 2023. Likewise, private lender Kotak Mahindra reported an 18.2% jump in its profitability for the same quarter.

Yet, despite their clear fundamental strength and the fact they are trading near to record highs, both stocks remain remarkably undervalued relative to their history.

We expect private banks to continue consolidating and strengthening throughout Modi’s latest term increasing the likelihood of a significant re-rate.

A promising outlook

Policy uncertainty – whether from anticipation of upcoming election results or the fallout from a vote now complete – is reducing the visibility of markets the world over.

India offers a clear path under a familiar leader whose policies have already led numerous large investment opportunities to emerge, and we expect that another four years of Modi’s leadership will offer investors outsized returns from a wide variety of sources.

By Abhinav Mehra, co-manager of the Chikara Indian sub-Continent fund

TIFIN has been backed by JP Morgan, Morningstar, Hamilton Lane, Franklin Templeton, and SEI among others.

TIFIN India includes MyFI, an AI assistant to help individuals achieve better wealth outcomes, as well as TIFIN India Enterprise, while Aditi Kothari Desai, vice-chair of the DSP group has joined the TIFIN India Enterprise board, the statement on 17 July said.

The launch of TIFIN India represents an important milestone in TIFIN’s vision to take its expertise in both direct-to-consumer (DTC) and business-to-business (B2B) AI for wealth applications to global markets it said.

The Indian market is unique in its potential for impact. As it stands today, the penetration of wealth management in India is only 8% (compared to 72% in the U.S. and 44% in China). With a population of more than 1.4B individuals, TIFIN expects over 500M individuals to access wealth and asset management services in the next 7 years.

TIFIN India will be organized into two main verticals, MyFi, an AI assistant to help individuals towards better wealth outcomes, and TIFIN India Enterprise, which will build AI native products for financial services firms.

TIFIN India Enterprise was launched in partnership with the DSP family group, one of the oldest and most respected financial services firms in India. In addition to an investment from the DSP family group, Aditi Kothari Desai, vice chairperson of the DSP Mutual Fund company, will serve on the board of directors for TIFIN India Enterprise with TIFIN Founder & CEO Dr. Vinay Nair.

“I am thrilled to announce our strategic partnership with TIFIN India Enterprise, marking a significant step towards bringing AI into the realm of Indian fintech,” said Aditi Kothari Desai, vice chairperson of the DSP Mutual Fund company. “TIFIN’s deep expertise in wealth AI, combined with DSP Group’s unparalleled 160-year legacy in the Indian financial sector and strong digital capabilities in wealth tech, positions TIFIN India Enterprise as a formidable venture.

“Our vision is to establish ourselves as the premier choice for developing AI-driven wealth solutions, leveraging our unparalleled blend of technological prowess and comprehensive domain knowledge to ensure the success of every project and product.

“We look forward to offering these innovative solutions to financial intermediaries through our group company, CompoundExpress, to start with.”

Vinay Nair, founder, chairman & CEO, TIFIN said, “Our vision is to leverage AI to help more people globally access better financial advice. We are combining our global expertise in verticalizing AI for wealth with local know-how. TIFIN India leverages learnings from TIFIN’s portfolio to build products that are specifically tailored for Indian investors and financial enterprises.”

TIFIN India’s strategy is well underway, as the firm announced India’s first conversational AI assistant, MyFi, for long-term wealth creation. MyFi leverages investment intelligence to generate personalized investment guidance based on the user’s investment portfolio for a segment that cannot be addressed only through human interaction given the sheer volume of investors.

TIFIN is an AI platform for wealth. TIFIN creates and operates companies that apply data science, AI, and technology to address frictions in wealth and asset management. TIFIN’s companies have included 55ip (sold to JP Morgan), Paralel and currently include Magnifi, TIFIN Wealth, TIFIN Give, TIFIN AG, TIFIN AMP, Sage, Helix, and TIFIN @Work.

The economist and author tells our sister title Portfolio Adviser there is a “tug of war” debate as to whether rates will return to near-zero levels as inflation falls, then revert to a ‘new normal’ of 2% or lower; or whether the past two decades of ultra-low interest rates were an anomaly, and that they are set to return to a more normalised range of 3-5%.

Depending on which scenario comes to the fore, she says there will be significant ramifications on which asset classes will outperform, and which will struggle, over the medium-to-long term.

“Anything where the opportunity to generate returns is based on a low rate is going to suffer. So, anything that relies on leverage or on taking outsized bets – I believe venture capital falls into this space, for example,” she says. “This is why I don’t think the Targeted Absolute Return sector is winning right now, either.

“Of course, there is a debate as to whether we will return to a low rate environment, in which case these opportunities could become interesting again. But given what happened to markets in 2022, 2023 was a case of going back to basics and asking: ‘in a higher cost-of-capital environment, where will the genuine returns come from?’”

Over the last three full years, equity and corporate bond market returns have varied widely. In 2021, the MSCI All-Country World index achieved a total return of 19.6% while the Bloomberg Global Aggregate Corporate Bond index fell 2%. Then in 2022, global equities suffered with the MSCI ACWI falling by more than 8%, while global corporates also lost more than 6%. Both asset classes achieved positive returns last year at 15.3% and 5.5% respectively, according to data from FE Fundinfo.

These returns coincide with varying moves from developed market central banks in a bid to curb rising inflation. When central banks embarked on interest rate rises at the end of 2021, bonds suffered while economic uncertainty weighed on equities. Rate hikes continued throughout the course of 2023, with inflation beginning to fall by varying degrees across the US, the UK and Europe.

“In 2023 there was a lot of discussion about value investing returning to the fore,” Baroness Moyo says. “If we consider the businesses which can survive over the long term and generate real returns above the cost of capital, these types of businesses certainly do look interesting. Which is why what happened in 2023 was odd, because the performance of growth stocks such as the Magnificent Seven was an anomaly in terms of the mood music of markets, given the interest rate moves we had seen.

“In short, it has been too easy to make good returns in bog standard, traditional multi-asset portfolios. You didn’t have to go into long/short portfolios, or venture capital, or anything that required a lot of leverage to make returns. And in fact, it is those areas which have now become higher risk. So, for now, I would argue that it is still very difficult to make the case for people to allocate capital to absolute return strategies.”

See also: Morningstar: Are basic allocation strategies still relevant?

The economist says that, while investors started 2023 “excited about credit”, given interest rate expectations, they are now beginning to hold off and question longer-term themes, given continued economic uncertainty.

AI and decarbonisation

“I would argue that there are two huge key themes. One is AI; hence the Magnificent Seven breaking out of that value anomaly last year. The second one is decarbonisation,” Baroness Moyo – who is also co-principle at the Versaca Investments family office – says.

“The last time we had a catalytic move in the economy on a structural basis was the 1980s, when we saw tech investment opportunities. This is the next one.”

These two themes spell a “real fundamental shift” in how economies will work in the future and therefore which assets will perform well, the economist says, although she adds that the cost of capital “obviously matters” in terms of how people will play these markets.

In addition to historically higher rates, Baroness Moyo says geopolitics have become more volatile – at a time when markets are pricing in interest rate cuts.

“I don’t think anyone over the last year would have accounted for two wars, the announcement of 11 countries joining Brics, swing states – real issues that could now be re-inflationary,” she warns.

“US inflation still stands at 3.1%. Germany is in a recession and Europe is weak, which could signal that rate cuts could be on the docket.

“Geopolitics could be incredibly disruptive, and could mean we live a ‘higher for longer’ environment and that is set to continue.”

Finding dislocations

Alongside moving out of leveraged plays, this uncertain backdrop has also led Baroness Moyo to play equities more “opportunistically”, holding out for market dislocations in favoured sectors such as healthcare, or more attractively-valued companies set to benefit from AI.

“We are mostly looking at AI on a ‘wait-and-see’ basis for the reasons that I mentioned. But if we start to see real productivity gains and genuine possibility for disruption from AI, I think it will be an opportunity.

“What does this mean for us? It means a skew towards taking money out of equities and putting it into cash or bonds, and waiting for opportunities in these much more structured bets such as AI.

“If it is true that, over the next 20 to 30 years there will be a fundamental shift in how the world operates, we want to be a part of that. So, the best thing to do is to dip in and take some money out of markets where we could be losing and put it into bonds, which are earning us 5.5-6%, until there is more clarity around how best to play the AI space.”

That being said, Baroness Moyo has “taken a nibble” at some less widely-held stocks she believes are attractively valued such as US healthcare provider HCA and cloud-based software company Salesforce.

Not-so-magnificent Seven?

When it comes to the Magnificent Seven stocks – many of which have become synonymous with investing in AI such as Nvidia, Amazon and Alphabet – Baroness Moyo is less tempted and says valuations are “too rich”.

“I understand the whole euphoria; it’s the New Year, let’s all get excited. But the market has sold off a fair amount already, coming into the year.

“But when it comes to the Magnificent Seven, which are trading on high price-to-earnings multiples… We had a bad 2021, a mixed 2022 with a big skew to certain stocks. In 2023, my sense was that people were waiting and seeing. And now, I think people are waiting for that first rate cut, then they are going to bank as much of that return as possible.

“So if anything, I’m worried that markets are going to sell off. Not initially, but I think institutional investors could be waiting for a rate cut and a market rally, at which point they will bank their gains tactically.”

The other risk with the Magnificent Seven stocks, says Baroness Moyo, is that they account for a very significant proportion of the S&P 500. According to data from Yahoo Finance, this handful of companies accounts for 29% of the US index’s entire market cap.

“If I look at the Magnificent Seven versus the 493 remaining stocks in the index, and I had to take a bet on either a bigger rally among the Magnificent Seven, or a revenue catch-up from the 493 others, I am going to bet on the catch-up,” she reasons.

“Do I believe that tech is the future? Absolutely. But we are talking about a numbers game here. I am looking at multiples and margins, the ability to grow top-line revenue and the ability to cut costs.

“On that basis, I think it will be harder for those very efficient larger companies, which achieved enormous gains in 2023, to continue that growth. I think a lot of value has been squeezed out of the Magnificent Seven, and a lot of that value is now dependent on how they execute on AI.”

Value in energy

In contrast, Baroness Moyo says the energy sector offers attractive valuations. “Why? Because we’re consuming 100 million barrels of oil every day across 8 billion people. People need energy to live – whether that is from fossil fuels or from renewables. That is an area where I think there have been relatively bad returns, but there is real opportunity for upside.

“For me, value investing is about a compelling sector-based narrative that is based off of basic needs, such as food, energy and transportation. But these companies have to be well-run. You have to be able to look at the margins, the fundamental demand and what that might mean for long-term opportunities, in order to generate risk-adjusted returns above the cost of capital.”

For the economist, this could mean investing in companies which provide fossil fuels and are looking to embark on the transition to net zero, as well as those leading the charge on reducing our dependence on carbon.

See also: Canada Life’s Sriharan: The rules of engagement on asset allocation have changed

Zambia-born Moyo says: “When you have been raised in an environment – like I have – where electricity and water is not automatic, you have a very different understanding of how difficult it is to deliver energy and deliver water.

“In the west, there are a lot of people who have good intentions for us to move and transition into this new equilibrium, which is renewables-based. That’s fantastic. I don’t know anybody who is against that.

“However, we have to be sensible about what the costs of that journey are and how easy it is to execute. It’s 2024 and there are many countries around the world which cannot create energy on a sustainable basis. And I’m not just talking about desperately poor countries – this includes middle-income countries like South Africa. Even California has suffered from energy disruption.

“This, to me, is precisely the dislocation that presents investment opportunities. The vast scale of our energy requirements, the need to transition, and the requirement to find the best companies at actually providing this.”

Has Japan turned a corner?

On a regional, macroeconomic basis, Baroness Moyo is positive on the US and Japan. When asked whether Japan has become a consensus trade, given its recent stockmarket rally, Baroness Moyo says there are two key reasons the market has performed so well. “One is technology and the other is energy – the two big long-term trends driving markets. These are massive pivot points for the world, and I think people see Japan as very much at the coalface of that.”

But people have been predicting a “new dawn” for Japan for decades – since its economy slumped throughout the nineties. Is the recent recovery the real deal? The economist does indeed believe the country has “turned a corner”.

“It’s extremely difficult to run an economy, to get a slow economy moving, and to get businesses and companies to work efficiently. There is a whole potential system of errors – a lot of things have to go right, and we have seen in the past how quickly things can fall apart. Germany was a huge economy doing well, and look how quickly it has come off the rails,” she explains.

“Japan has a lot of things going right for it. It has strong levels of high education, it has a business sector which is sharp and knows how to innovate. It is difficult for a country to put these things in place.

“We have seen it in the UK – I often talk about how, 15 years ago, business was a big piece of the story. Business accounted for a large part of the UK economy; everyone was talking about the banks, Rolls Royce, Marks & Spencer. Today, that is less the case.”

Home market

Indeed, while the Topix has gained 9.2% over the last six months alone, according to FE Fundinfo data, the FTSE 100 has achieved less than one quarter of these gains over the same time frame, at just 1.3%. It has also achieved less than half of the gains of the MSCI All-Country World index over the last five and 10 years. Does the UK market present a value opportunity?

“I’m afraid it will still be a case of ‘wait and see’ for the UK. There is a lot of hope that this is the home of industrial revolution; that we can get back to business and back to clarity. But the business and markets have become so intertwined with politics that there is risk,” Baroness Moyo says.

See also: Facing the inflation dilemma head on

“It is at the point with politics where business has not been able to work without a political overhang creating costs from a regulatory perspective, and from a risk mitigation attitude when it comes to investing.

“In the US, if I talk about AI or the energy transition, the first question people will ask me is how much money they could make if they invest $1 – what return would this generate? When I have the same conversation in Europe, the first question is how to mitigate any risks coming from those themes.

“Our only way out of this is to find some kind of balance between these two attitudes. I’m worried that a lot of conversation in the UK is still very top down and government led, where people would rather kill off investing in certain areas, rather than use innovation to solve any issues.”

Emerging markets

Baroness Moyo is also reticent to invest in emerging market equities, arguing there are other areas where investors can generate “considerable returns, above the cost of capital, without the inherent risk”.

“I understand the arguments on paper. The macroeconomic arguments are very compelling. But as a practical matter, life is too short,” she says. “It sounds flippant, but it’s fundamentally true. Investors only have a certain number of years to make returns. That doesn’t mean they can’t ultimately achieve gains and compound those returns. But why take the risk by putting your capital in a market with slowing growth geopolitical risks and FX problems? It’s very hard.

“In my case, I only have 20 years to compound any returns. Why would I waste my time trying to work my money in an uncertain environment? Yes there could be some outside bets but I am willing to leave that money on the table.”

See also: Top five investment themes to look out for in India in 2024

She cites India as an example which is popular among investors. According to FE Fundinfo, the MSCI India index has returned 26.3% over the last year – more than double that of the MSCI ACWI.

“Lots of people say they are going to make billions by investing in India. Good luck to you, but I am willing to reduce my basis-point returns and not have to deal with the risk,” she reasons.

“Would I ever say India is never going to make it? No, it’s not my place to say that. But what I will say is it is extremely difficult to generate predictable returns in that kind of environment. There is a lot of red tape; it is definitely skewed towards locals winning over the foreign partner. It doesn’t have a great track record.

“People have to understand it’s not free money; there are other places you can invest and generate returns with relatively little risk.”

This article was written for our sister title Portfolio Adviser

Strong rates of economic growth can boost corporate profits and increase investor confidence. Likewise, an expanding economy often attracts foreign investment, further fuelling equity markets. This backdrop bodes well for the country heading into 2024 and beyond but here are five areas, in particular, we’ll be keeping our eye on.

Elections: Stability amid volatility

The 2024 Indian general elections are a pivotal event, with the Bharatiya Janata Party (BJP) led by Narendra Modi likely to retain power. The BJP led in the recent state elections of December 2023, further demonstrating the party’s popularity and likelihood of winning in general elections.

Such political continuity suggests sustained reforms and economic policies. The past decade under BJP’s governance has seen significant deleveraging and reforms. Despite likely heightened market volatility around the election period, we believe the long-term outlook remains positive, with a strong foundation set for continued growth and stability post-election.

Oil and energy prices: Navigating external shocks

India’s economic landscape continues to be influenced by global energy dynamics, especially in the aftermath of conflicts such as the Russia-Ukraine war and tensions in the Israel-Palestine region. As one of India’s largest imports, oil prices pose a significant risk.

However, the country’s robust foreign exchange reserves and potential financial inflows from its inclusion in the JP Morgan bond index could mitigate Current Account Deficit (CAD) pressures. This dynamic demands careful monitoring, as it directly impacts India’s macroeconomic stability.

PLI scheme and manufacturing: A new era

India’s manufacturing sector is poised for a transformative leap, with the production linked incentive (PLI) scheme attracting global giants such as Apple and Samsung. The potential entry of Tesla, driven by attractive domestic manufacturing incentives and access to India’s vast consumer market, marks a significant milestone. This shift not only diversifies India’s manufacturing base but also reduces tariff burdens, making it an attractive destination for international companies seeking to decentralise their manufacturing bases.

The AI challenge: Reshaping the IT landscape

The rapid advancement of artificial intelligence (AI) presents a formidable challenge to India’s traditional IT outsourcing model. The rise of Global Captive Centres signifies a shift towards in-house, more efficient operations by global corporations. This trend threatens the business models of many listed Indian IT service providers, demanding a strategic reorientation towards innovation and higher-value services to maintain competitiveness in the evolving digital landscape.

Indian consumption: A pillar of economic strength

The Indian economy’s backbone, consumption, is witnessing a significant upswing, particularly in the real estate sector. This resurgence has a substantial multiplier effect on the economy, signalling a robust increase in consumer demand. With consumer leverage still at modest levels, the trend towards increased spending is expected to bolster the consumption-driven sectors. Investors should closely watch this trend, as it offers insights into the broader health and direction of the Indian economy.

Conclusion

In our opinion, investing in India in 2024 requires a nuanced understanding of these five key themes. The political landscape, external economic shocks, manufacturing incentives, the technological revolution in AI, and the robust consumption patterns collectively shape the investment climate.

Navigating these themes with a balanced approach, focusing on long-term trends while being cognisant of short-term volatilities, will be crucial for investors looking to capitalise on India’s growth trajectory.

It is one which is shaping up to be strong as indicated by the government’s recent revision up of its GDP forecasts suggesting continued economic expansion in excess of 7% for the foreseeable future.

Andy Draycott & Abhinav Mehra are co-managers of Chikara Indian Subcontinent fund