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What could fuel India’s next boom (and why this A-rated PM is bullish)

With domestic and foreign investment on the rise, Aubrey Capital’s Rob Brewis believes a well-capitalised banking system is now ready to support the country’s progress.

BY DANIEL RUIZ India became the ‘darling’ of emerging markets darling some time ago, but Rob Brewis, manager at Aubrey Capital Management, believes there is more to come.

Brewis, who runs the Aubrey Global Emerging Markets fund, said there are multiple drivers for the coming investment upturn in the Asian country, with the major one being private sector corporate capex.

Public sector banks fuelled the latest investment boom a decade ago. With balance sheets having been compromised for some time, the now well-capitalised financial sector represents a key factor for a potential cyclical upturn.

As Citywire head of investment research Frank Talbot flagged late last year, India had a remarkably resilient 2022, driven by strong growth and swift central bank and government action to curb the impact of inflation.

The MSCI India index fell just 7.5%, in comparison to the MSCI China index, which fell 21.6% over the same period, having managed to uplift its performance during the last months of the year.

Since the beginning of November, India has been the poorest performer among the five largest components of MSCI Emerging Market index, which are China, India, Taiwan, Korea and Brazil.

The question hanging in the air is whether this is a short-term gain for China and others or the start of a more pronounced de-rating of Indian equities.

Brewis believes the current steady rise in loan growth will be crucial, as will domestic companies, most of whom are starting from a very strong and under-leveraged financial position.

Foreign investors are also expected to come in numbers, as last year India hit a record $80bn in foreign direct investment.

The $497.8m Aubrey Global Emerging Markets fund currently has a 25.4% allocation to India, which is below the 43.2% allocated to China.

In terms of specific companies, Brewis highlights Apple, with iPhone exports from India having grown from $100m per month in April 2022 to $1bn a month in January 2023.

He believes there is potential for consumption to increase, as India’s urbanisation levels are currently low, at around 35%. ‘Why would you leave the farm if there are no jobs in the towns or cities to go to?’ he asked.

‘What this investment upcycle implies is rising urban job creation, whether its construction, manufacturing, or associated service jobs, and only this will drive urbanisation,’ Brewis said.

‘Experience tells us that an urban job comes with an income which is a multiple of the rural one left behind, and that multiplier drives consumption.’

Related Portfolio Managers Rob Brewis 363/556 inEquity - Global Emerging Markets(Performance over 3 years) Average total return:8.41%


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