Investing

Why India May Be the Best Place for Investors in 2018 and Beyond

The Organization for Economic Cooperation and Development (OECD) just issued its freshly updated economic outlook calling for stronger global growth in 2017 and in 2018. The problem is that many of the world’s top economies, including Japan and China, face declining growth or flat growth in 2018 if that report proves true — but not in India. The OECD showed that India is projected to have growth of 6.7% in 2017, followed by growth of 7.0% in 2018 and then 7.4% growth in 2019. It has cited India’s reform programs aimed at boosting investment, productivity and growth. According to the OECD, India is set to gradually recover from the adverse impacts of rolling out the goods and services tax and measures to choke off the black economy, including demonetization.

And we would not want you thinking we only look at the good forecasts. Not everyone agrees that India will be the best market to invest in 2018. The International Monetary Fund (IMF) projected as recently as October that India would grow at 6.7% in 2017 and 7.4% in 2018, which are actually 0.5% lower this year and 0.3% lower for next year, compared with prior forecasts.

There is also the reminder that if economic growth expectations fall short then the investor view gets treated badly by investors. Morgan Stanley’s global 2018 outlook was more bullish on China and Brazil than India, noting that it reduced its Overweight rating on India to accommodate Brazil’s upgrade, and China remains its top Overweight rating in the global view for emerging markets.

Standard & Poor’s recently kept its sovereign rating for India unchanged at BBB- and retained its Stable outlook. On the other side of the coin was Moody’s, which raised India’s sovereign rating to Baa2 from Baa3 with a Stable outlook.

The Moody’s outlook is for real GDP to grow by 7.5% in 2018, with a similarly robust level of growth from 2019 onward. Moody’s was positive about bank recapitalizations and also noted that Indian insurers are well positioned to benefit from strong domestic economic growth. Its report from November noted this:

The decision to upgrade the ratings is underpinned by Moody’s expectation that continued progress on economic and institutional reforms will, over time, high growth potential and its large and stable financing base for government debt, and will likely contribute to a gradual decline in the general government debt burden over the medium term. In the meantime, while India’s high debt burden remains a constraint on the country’s credit profile, Moody’s believes that the reforms put in place have reduced the risk of a sharp increase in debt, even in potential downside scenarios.

If you go back to the OECD report, India’s efforts to digitize the economy and to improve tax compliance should act to boost tax revenue in the medium term. Those efforts were also accompanied by an increase in public pensions and wages. There were some state debt write-offs as well, all of which are expected to be neutral ahead.

The expected GDP gains are coming from a recovery in private consumption and on the notion that industrial production has bottomed out. Also worth noting is that the core inflation rate has hovered around 4%, down from almost 10% just five years ago. This potentiality that growth and emerging market investors will chase gains further into India is a sea change from less than two years ago. Even in early 2016, India’s investment prospects seemed grim.

24/7 Wall St. tracked three of the major exchange traded funds (ETFs) and closed-end funds and provided outlook data on five of the major Indian stocks listed on major U.S. stock exchanges. We have also provided information about four of the smaller ETFs that some investors may have overlooked.

iShares India 50 (NASDAQ: INDY) is a key ETF in India, with close to $1.2 billion in assets under management, and it tracks the investment results of an index composed of 50 of the largest Indian equities. This trades about 200,000 shares per day. Its shares were last seen trading at $36.40, with a 52-week range of $26.73 to $36.69.

The India Fund Inc. (NYSE: IFN) is the top closed-end fund dedicated to India, with about $888 million in net assets at the last official release of the company. Its net asset value at that time was $31.46, according to the data from Aberdeen Asset Management. Shares recently traded at $27.68, and the 52-week range is $20.39 to $28.81.

WisdomTree India Earnings ETF (NYSEAMERICAN: EPI) is the top ETF from recent years, and it most recently listed assets of $1.84 billion. Its shares were last seen at $27.24, with a 52-week range of $19.72 to $27.37.

Tata Motors Ltd. (NYSE: TTM) is the car giant in India worth more than $20 billion. On top of the Nano and other key brands in India and Asia, Tata Motors now also owns the Jaguar and Land Rover brands. Its U.S.-listed shares recently traded at $32.19. The stock has a consensus analyst price target of $45.00 and a 52-week trading range of $28.97 to $40.34.

ICICI Bank Ltd. (NYSE: IBN) is a key banking and financial services giant in India, with a $31 billion market value on last look. As of March 31, 2017, the bank was said to have had a network of 4,850 branch offices and 13,882 ATMs. Its U.S.-listed shares were last seen at $9.64, with a 52-week range of $6.69 to $9.93 and a consensus price target of $11.40.

Infosys Ltd. (NYSE: INFY) is a $36 billion IT-consulting leader in India. Its ADSs were trading at $15.56, in a 52-week range of $13.42 to $16.15 and with a consensus price target of $15.04.