Spotlight on India: Opportunities Abound, but Valuations Are High

Spotlight on India: Opportunities Abound, but Valuations Are High

Adam Sparkman: Welcome to this quarter’s emerging markets country spotlight. Today we are joined by Thornburg portfolio manager Josh Rubin, who will shed light on the thriving market of Indian equities. India is known for its vibrant economy, diverse sectors and robust growth potential. Indian equities offer a wide range of sectors that present compelling opportunities for investors seeking long term growth from technology and consumer goods to health care and housing. Let’s dive in and explore the world of investment opportunities in India.

Okay. Maybe we’ll turn the page to the individual sectors of the economy. What are some areas that really stand out to you right now?

Josh Rubin: The good news is the top-down picture for investing in India is very attractive and the breadth of offer opportunities is very high across all sectors. There are interesting themes and great companies to invest in. The bad news is valuations are also very high in India today. So discipline, caution are important when thinking about the entry point for stocks, since valuations are already so high, both on an absolute basis and relative to the rest of emerging markets.

But a couple of areas that we think stand out today are essentially where you take popular theme, but you look at a derivative or something off to the side a little bit. So, for instance, people generally think of the consumer as being discretionary consumption in stores, retail and so forth. Housing in India certainly a consumer product has been underinvested in for the last decade.

And what’s really interesting is that across the rest of the world, we’ve seen rising home prices and now peak interest rates, making housing affordability all time low and all-time lows across the world. But in India, even after a decade of under-investment, house prices have basically been stable while incomes have been growing. So affordability is at all-time highs in India today.

And what that means is consumers or sort of this change in households moving smaller. Everybody’s ready to buy a new home, especially after COVID. It’s a catalyst for people wanting to move out of a ten-person household into just a single-family household. So housing is one area that we think is very attractive in India. And you can buy home builders that have the opportunity for 15 to 20% growth for the next decade at multiples that are in line with or sometimes even cheaper than other consumer discretionary companies. Another area that we also know has been underinvested in and think offers a long runway for growth is health care.

India has been a great training ground for doctors or other health care professionals for the rest of the world for the last 20 or 30 years. But today, with rising incomes, there’s a chance for those professionals to stay in country and provide health care to the general Indian population. But if you look at a variety of metrics, number of hospital beds per capita or just the general availability of primary care, it’s low across India and insurance coverage is generally low. Or, you know, insurance doesn’t cover as much as it might in the United States. So what that means is health care is a good where the price to value is very important. It’s not just treat me whatever the cost. So, to be a good operator, you need to both deliver good health outcomes, but also do it at the right price. And we think there are very attractive opportunities for investing in the health care space in India today. The third area that has been around in India in public listed companies for a long time, but we think again still has a very long runway for growth is the financial sector.

And there’s really three parts to it. One is for India’s growth; corporates still need to borrow to invest in additional capacity for anything they’re providing. Wealthier or sort of middle income and above. Households are growing more sophisticated in the needs they have for financial products. And finally, that bottom of the pyramid as it moves into the middle of the diamond requires financial inclusion.

So there are a variety of opportunities across financial sectors, not just the big dumb bank, but specialized finance companies or universal banks that are all very attractive for the coming years.

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