India proved relatively resilient to the stock market falls seen in 2022. While India’s outperformance was driven by a number of factors, in particular it was helped by a deluge of domestic money entering the market. Foreign investors sold a record amount of Indian equities in 2022. This is quite a change from what has gone before. For many years foreign investors had dominated asset flows into the Indian stock market. Now, however, more of the market is owned by domestic institutional investors than by foreign ones. Contrary to the ‘rise of the day-trader’ phenomenon witnessed in the USA, these domestic investors aren’t just interested in short-term trading. They have also bought mutual funds through longer term vehicles like unit-linked insurance policies and pension plans. Our view is that this trend will continue; indeed December 2022 saw record amounts invested in monthly savings plans in India.


An interesting facet to this influx of domestic money is that it is increasingly favouring the cheaper end of the market in valuation terms. For investors like ourselves, who seek ‘growth at a reasonable price’, this has certainly been a welcome change; prior investor appetite might be described as ‘quality at any price’ and had driven up valuations for some companies to extreme levels.


Against this backdrop, of course the Indian economy continues to go from strength to strength and it has overtaken the UK as the world’s fifth-largest economy. This evolution has in no small part been powered by technology: India is a highly digitally connected society these days, with many billions of electronic transactions being made every month. This has multiple benefits for consumers. It reduces costs for businesses, gives them greater access to credit, and also brings more people into the formal economy which enables access to official channels for savings. The increasing formalisation of the economy also benefits the government in terms of higher tax receipts. IT services have long been a key part of the Indian economy, but these days India is a world leader in fintech as well.


Tailwinds such as structural growth in digital technology, and a growing desire for business elsewhere in the world to move operations out of China (of which India is one obvious beneficiary), set India up for continued strong economic growth in a world that is generally starved of it. As an investor in Indian equities, that gives me great confidence for the future long-term prospects of the asset class. 

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