Abrdn Investment Directors, Gabriel Sacks and Xin-Yao Ng, recently returned from an intriguing visit to India. Their journey led them to unveil valuable insights during meetings with various company holdings, analysts, and government officials.

Purpose of the trip

We were keen to gain a deeper insight into the local political dynamics, and the majority of our meetings were focused on what could potentially upend India’s growth story, given how the market is now a consensus buy and the outlook is unequivocally positive.

Key takeaways

1. Politics: A potential super majority for Modi

It is highly expected that Prime Minister Narendra Modi will win a super majority at the upcoming elections in April-May. Having won 303 seats in the lower house in the 2019 election (282 in 2014), many expect the ruling Bharatiya Janata Party (BJP) to win 350-400 seats this year. This far exceeds the 272 needed for a majority in government and will be the best number that a government has achieved since 1984.

This result, if it materialises, should enable Modi to make reform progress post elections of which the most significant appears to be (i) a step-up in privatisations (including some state-owned banks) and (ii) agricultural reform, of which the Land Acquisition Policy is the most important. The key opposition party, Congress, is in disarray and Rahul Ghandi is not a popular leader, which will give the BJP even more confidence to push forward with its economic agenda.

2. Economy: Full steam ahead with Made In India

The country’s economic growth remains robust, with notable strength in manufacturing and construction, and the “Made in India” story is increasingly tangible across several sectors. Investment-led growth is likely to benefit sectors such as industrials, infrastructure, power and real estate.

Manufacturing has already increased from 14% to 22% of GDP and there should be more to go with the government introducing production-linked incentive (PLI) schemes across 14 sectors1, given that companies in the private sector can use tax breaks and incentives to increase manufacturing capacity. Gross fixed capital formation as a % of GDP has risen to 29.3%, but this compares to a peak of 35.8% back in 20082.

GDP growth at 8.4% in 3rd quarter, fastest in 1.5 years

Times News Network


3. Policy: Fiscal discipline very much intact

Modi is a fiscal hawk, so we are unlikely to see much in terms of fiscal transfers and therefore undue pressure on the government’s finances and the currency – albeit oil imports remain an area of vulnerability, given rising oil prices.

4. Equities: Domestic flows are big source of support

As domestic savings continue to be channelled into local mutual funds, equity markets should continue to broaden out and new companies come to market. The domestic investor has helped to create a low-volatility environment in Indian equity markets over the past few years despite the occasional spikes in outflows from foreigners. In the view of a sell-side broker, India has now become a market that even global mandates cannot ignore.

5. Valuations: Froth building up in small and mid-caps

We see the risk that valuations in India are perhaps already pricing in all the good news, and it was interesting to hear some companies admit that they could not make sense of their valuations. This is primarily a problem for small and mid-caps with the regulator even stepping in recently to suggest that mutual fund houses need to put in place measures to protect retail investors given the froth building up in this space.

“India is in a bull market, particularly in the small and mid-cap space, supported by strong inflows by domestic investors into equity mutual funds. This, in turn, is broadening the range of publicly-listed companies that we can invest in. Valuations do reflect an optimistic outlook, but the fundamental story is indeed very positive with tangible progress on the ‘Made in India’ narrative and strong growth in capex-intensive industries such as manufacturing and construction. A strong showing from the BJP in the upcoming elections should be cheered by investors although we would also hope to see credible opposition to help maintain an environment of healthy political and social dialogue in the world’s largest democracy.”

Gabriel Sacks, Investment Director

Our thoughts

“The cities are buzzing and every company we met was brimming with confidence. Modi has had to make some tough policy choices to lay the foundation for the growth taking place today. If he secures a larger mandate, we are hopeful that the policies might be even more constructive, and that we might be set for another few good years of growth at least. On a longer-term basis, we should not be too complacent and I would hope for (a) credible succession planning and policy continuity given Modi’s age, (b) more to be done for the poorer segments of the population, given the risk of a further widening of the wealth gap, (c) moderation of religious extremism, as well as (d) measures to support a more stable currency.”

Xin-Yao Ng, Investment Director

Gabriel Sacks and Xin-Yao Ng, Investment Directors, abrdn.

Gabriel and Ng Xin


The Indian economy is in the early stages of a cyclical upswing. It is one of the fastest-growing countries in the world, supported by a resilient domestic macro environment. Inflation eased to within the Reserve Bank of India’s tolerance range, and the central bank has stayed on the sidelines since February 2023 when it last raised interest rates.

Public policy also remains supportive with sufficient fiscal discipline to reassure investors. In the latest interim budget for 2024, the government targeted a sharp fiscal consolidation but kept the focus on a capex-led growth momentum for India. This is expected to create more jobs in the economy, and eventually spur a private capex cycle.

In a stark contrast to other major emerging markets, India’s real estate sector is seeing strong growth momentum, particularly in the residential segment. Meanwhile, Indian private sector banks remain fundamentally strong, with healthy balance sheets, albeit there have been some concerns around liquidity and future loan growth.

All of this is helping to sustain attractive earnings growth and a recovery in return on equity. We have added new names in the portfolio and topped up existing ones to take advantage of the recent market correction.

India still faces some near-term risks, most of which are external. This includes potentially higher global energy prices and a slowdown in the world economy. On the domestic front, India’s parliamentary elections will take place in seven phases starting mid-April, with results being announced in early June. The market expects political continuity in Modi and BJP being re-elected for another term.

While there could be the near-term headwinds, we expect our core quality holdings to continue to deliver resilient compounding earnings growth over the medium term, come what may in terms of macro conditions. The consistency of earnings growth of the portfolio remains healthy and company fundamentals of our holdings, including pricing power, strong balance sheets and the ability to sustain margins, remain solid. We maintain confidence in the experienced management of these companies.

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An investment trust should be considered only as part of a balanced portfolio. The information contained in this document should not be considered as an offer, solicitation or investment recommendation to deal in the shares of any securities or financial instruments. It is not intended for distribution or use by any person or entity who is a citizen or resident of or located in any jurisdiction where such distribution, publication or use would be prohibited. Nothing herein constitutes investment, legal, tax or other advice and is not to be relied upon in making an investment or other decision. No recommendation is made, positive or otherwise, regarding individual securities mentioned. This is not an invitation to subscribe for shares and is by way of information only. Investment should only be following a review of the current Key Information Document (KID) and pre-investment disclosure document (PIDD) both of which are available on www.invtrusts.co.uk. Any data contained herein which is attributed to a third party (“Third Party Data”) is the property of (a) third party supplier(s) (the “Owner”) and is licensed for use by abrdn*. Third Party Data may not be copied or distributed. Third Party Data is provided “as is” and is not warranted to be accurate, complete or timely. To the extent permitted by applicable law, none of the Owner, abrdn* or any other third party (including any third party involved in providing and/or compiling Third Party Data) shall have any liability for Third Party Data or for any use made of Third Party Data. Neither the Owner nor any other third party sponsors, endorses or promotes the fund or product to which Third Party Data relates. * abrdn means the relevant member of abrdn group, being abrdn plc together with its subsidiaries, subsidiary undertakings and associated companies (whether direct or indirect) from time to time.

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