India remains a bright spot, the International Monetary Fund said in a recent report, adding it will account for half of global growth this year together with China. We found a lot of anecdotal evidence of that optimism. A rapid digitalisation of the economy is taking hold, with consumers in remote towns now able to pay street vendors with 5G enabled phones. Physical infrastructure is also getting a fillip, with the road network expanding at a rapid pace. Such improvements underpin strong demand for goods and services. While we find opportunities across many sectors, we particularly favour domestically focused businesses in sectors such as healthcare staples, consumer discretionary and industrials, which are poised to benefit from the current environment.
The biggest surprise in the budget for financial markets was the change in taxation of life insurance savings policies. Favourable tax treatment of these policies had made them increasingly attractive to affluent customers. However, we believe that insurers will be able to mitigate the roughly 10-12% impact on revenue growth via changes to the product mix. Our view is that the market has overreacted to the tax hikes, particularly with regard to SBI Life (our largest insurance holding).
Consequently, the earnings dynamic seems likely to be better further up the value chain, or in cement companies that have a company-specific cost optimisation story, such as Ambuja Cement (held in the strategy).
While banks in the Western world are facing stress due a rapid tightening of monetary policy, interest rates in India, initially high relative to developed nations, have inched up slightly. Of course, India is not an island and global problems will have repercussions on India too, but we need to wait and watch how the situation unfolds.
Market participants have been keenly awaiting the start of a new capex cycle in the private sector, and we are seeing some early signs of this in accelerating loan growth to companies; ICICI bank, for example, reported corporate loan growth at 18% y-o-y with SME loans growing even faster at 25%. Balance sheets are strong, with corporate debt as percentage of GDP at a 15-year low of around 50%, significantly below the level seen in most other large economies. Households are likewise underleveraged, and loans are growing double digits, undeterred by interest rate hikes that have simply brought rates back to where they were pre-Covid.
Banks in India are significantly more conservative and risk-averse than their developed market peers. With no shortage of deposits, they focus on the basics of banking: traditional, vanilla lending and credit analysis, with exposure to the riskier end of finance avoided entirely.
* Holding examples are for illustrative purposes only and are not a recommendation to buy or sell.
The value of active minds: independent thinking
Get in touch
A key feature of Jupiter’s investment approach is that we eschew the adoption of a house view, instead preferring to allow our specialist fund managers to formulate their own opinions on their asset class. As a result, it should be noted that any views expressed – including on matters relating to environmental, social and governance considerations – are those of the author(s), and may differ from views held by other Jupiter investment professionals.
This communication is intended for investment professionals* and is not for the use or benefit of other persons, including retail investors.
This document is for informational purposes only and is not investment advice. Market and exchange rate movements can cause the value of an investment to fall as well as rise, and you may get back less than originally invested.
The views expressed are those of the Fund Managers at the time of writing and are not necessarily those of Jupiter as a whole and may be subject to change. This is particularly true during periods of rapidly changing market circumstances. Every effort is made to ensure the accuracy of any information provided but no assurances or warranties are given.
Issued in the UK by Jupiter Asset Management Limited, registered address: The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ is authorised and regulated by the Financial Conduct Authority. Issued in the EU by Jupiter Asset Management International S.A. (JAMI), registered address: 5, Rue Heienhaff, Senningerberg L-1736, Luxembourg which is authorised and regulated by the Commission de Surveillance du Secteur Financier. Issued in Hong Kong by Jupiter Asset Management (Hong Kong) Limited (JAM HK) and has not been reviewed by the Securities and Futures Commission.
No part of this commentary may be reproduced in any manner without the prior permission of JAM, JAMI or JAM HK.
*In Hong Kong, investment professionals refer to Professional Investors as defined under the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong).and in Singapore, Institutional Investors as defined under Section 304 of the Securities and Futures Act, Chapter 289 of Singapore.