Online investment platform Rplan, which offers access to over 2,000 funds for retail investors and a tool to compare fees, has found a huge 280% increase in flows into Indian-only funds in 2015 as compared with 2014, as investors looked to capitalise on this market. But they also warn that these funds could be the latest “investment fashion item.”
The research from Rplan, which is authorized and regulated by the UK’s Financial Conduct Authority, reveals that there are 294 Indian-focused collective investments (mutual funds, exchange traded funds and investment trusts) available to investors, but 90% have the two highest risk rankings of 6 and 7 (16% and 74% respectively).
The means annualised volatility of 15% - 24.99% or over 25%, respectively. Just 23% of the funds available to invest in are fixed income, with the remainder being pure equity (shares). The asset management industry has certainly capitalised on the growing investor appetite in India by launching 21 Indian collective investments over the past 12 months, and 63 (21%) of the total have been launched since 2013. A little under half (47%) have been around for at least five years.
The Indian stock market grew by around 30% in 2014. And, despite investment returns being negative in 2015, it still outperformed global markets. That said, the S&P BSE SENSEX, India’s most tracked bellwether stockmarket index measuring the performance of the 30 largest companies across the Indian economy, stood at 24,539 on Tuesday, 2 February 2016. It puts the one-year return at a lacklustre -14.54% and year to date performance at -6.04%.
Some market commentators though are predicting a much stronger performance over the course of the next year fuelled by steady GDP growth, price declines in commodities such as crude oil, and falling inflation.
Stuart Dyer, Rplan.co.uk’s CIO, commenting said: “The Indian stock market has been outperforming global markets and this explains why we have seen such a big increase in inflows into Indian equity funds. However, our research shows that this is a very volatile asset class and investors should only have a small exposure to it as part of a balanced portfolio.”
In a cautionary note Dyer adds: “I fear that Indian equities are the latest investment fashion item just as China and emerging markets have been. These are high profile, but high risk investments. And, many retail investors are overly exposed to them.”
The findings come in the wake of the world’s first Indian fixed-income ETF (exchange traded fund), the LAM Sun Global ZyFin India Sovereign Enterprises Bond UCITS ETF, being listed on the London Stock Exchange (LSE) on 19 November 2015.
Available to be traded in Sterling (‘CRRY’ ticker) or US dollars (‘CURY’), this ETF is composed of six issuers including bonds from the Export Import Bank of India (with a 9.3% coupon) and the Food Corporation of India (9.95% coupon) as at 16 Oct 2015. It tracks the total performance of corporate bonds issue by SOEs (Sovereign Enterprises) and focuses on the liquid bonds having the highest rating in its category with an average maturity of almost 9 years.
Put in perspective, underlying diversified Indian corporate bonds have offered fairly attractive US dollar returns of 6.75% (CAGR) for the last 15 years.
More recently, this January a Memorandum of Understanding (MoU) was formally ratified by officials from Yes Bank, India’s fifth largest private bank, and the LSE in the UK for both parties to collaborate on debt and equity issuance through the exchange.
Yes Bank, which was co-founded by Rana Kapoor in 2004 and today has a pan-India presence across all 29 states and seven Union Territories of the country, aims to list up to $500m of Green Bonds on the LSE in 2016.
This latest collaboration not only confirms London’s position as the leading international green finance centre, but more longer term it should be brings benefits of further internationalizing India’s capital markets. Despite recent weakness in India’s stock markets, when investing in India one must take a long-term view to cash in.
For now though India's GDP has come in reassuringly positive with news earlier this week that the country officially overtook China as the world’s fastest growing economy. This follows Monday's release of India’s higher-than-expected year-on-year GDP growth rate of 7.3%.
Caption should under photo read (if used):
Mr Rana Kapoor, YES Bank's CEO & Managing Director, and Nikhil Rathi, the LSE Plc's CEO, signing an MoU on 19 January 2016 in London.
