As the nation develops, India becomes an even more appealing destination for investors. International Monetary Fund (IMF) predicts India’s most rapid real GDP growth since independence by 2023. Listed below are some of the key drivers of this growth, as well as an introduction to invest in India.
- Contrary to the likes of the UK or Japan, India has one of the world’s youngest populations. CIA reports that over 85% of the populations are under 55 years old, as suggested by the United Nations.
- Within this large workforce are the third-largest group of scientists and technicians globally
- By 2030, the World Bank estimates that India’s population will have urbanized by 11%. Highlighting the country’s potential for medium- and long-term returns.
- Improved infrastructure across several sectors, including energy, roads, urban development, and railroads, permits better efficiency for business and personal use in India.
- Indian international business has been streamlined in the last several years, leading to a rise from the 142nd ranked country in the World Bank’s ‘Ease of Doing Business Rankings’ in 2014 to 63rd by 2019.
- Similarly, India has jumped from 81st in the 2015 Global Innovation Index up to 48th by 2020, increasing its ranking year on year. These measures highlight the rapid competitive gains the Indian economy is making every twelve months.
- Lastly, the University of Strathclyde and Lloyd’s Register Maritime project India. And China to be the largest manufacturing hubs in the world by 2030. Shifting the centre of global maritime trade from the Pacific to the Indian Ocean region.
Based on these projections, it is clear that investing in India may have never been more lucrative. But how can you invest in India and which method is best for you?
The Indian Stock Market
Investment in Indian stocks comes primarily in two forms, foreign direct investment (FDI) and foreign portfolio investment (FPI). FPI exists passively and simply awards a share of a firm’s profits. But FDI involves some control over the firm’s management.
India has two competing stock markets: the more populous Bombay Stock Exchange (BSE). And the slightly smaller National Stock Exchange (NSE). Yet due to its greater trade volume, the NSE is a liquid market that attracts day traders and short-term investors. The competition between the markets ensures lower costs as well as greater efficiency and innovation.
Some of the more common methods for investing in India include:
- Global depository receipts (GDRs)
- India-focused mutual funds
- Exchange-traded funds (ETFs) / exchange-traded notes (ETNs)
GDRs are the receipts under which Indian companies list themselves on the London Stock Exchange. This is likely the most accessible way to acquire a holding in Indian firms. You may also contact the Indian market directly with international trading accounts. Though you may need to pay forex exchange commissions or fees.
Many different investors’ finances make up a mutual fund. Investors contribute to the fund by purchasing various financial instruments that can be used to build a portfolio that generates consistent returns. The fund then pays out profits proportionate to each investor’s contribution to the fund. Investors may seek mutual funds focused on Indian financial instruments to gain access to diversified investments in the country under professional management.
ETFs, like stocks, maybe exchanged freely intraday, much like mutual funds. They act as diversified investments packaged together around an underlying asset or index. ETNs are similar in this way but function more similarly to bonds. They are unsecured debt securities issued by financial institutions, eventually paying out the return of the index it tracks at maturity. Meanwhile, investors can purchase and sell them.
There are a number of options available to track various Indian indexes via ETFs that brokers and wealth managers offer. ETNs are altogether rarer, with Barclays Bank liquidating their iPath MSCI India Index ETNs in September 2020 and no clear substitutes appearing by the time of writing.
Despite these options, there are certain restrictions in place on foreign investment into India which should be acknowledged by would-be investors. Some of these include:
- Limitations on the percentage of capital that can be invested from those resident outside India, which vary according to sector
- Entry conditions for some investments such as lock-in periods or minimum capitalisation
- Complying with state or local laws if applicable
- Prohibition of foreign investment in a number of sectors including, but not limited to: real estate, tobacco, lottery businesses, gambling and transferable development rights
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