India is becoming a hot market for investment thanks to its booming economy, stable currency, strong stock market and growing working age population. Franklin Templeton’s Yi Ping Liao describes the South Asian country as “a fertile hunting ground to identify stocks.” “India has much more stable sort of macro environment compared to other emerging market countries. And if this continues, you can potentially see lower equity risk premiums for the market,” the assistant portfolio manager told CNBC Pro on Sept. 12. Liao is part of Franklin Templeton’s emerging markets equity Asia strategy team, which has $2.9 billion in assets under management across the Templeton Asian Growth Fund and institutional accounts. She likes that the Indian market offers the “opportunity to identify good stocks,” following an improvement in its breadth. An example of this, she says, is the MSCI India Index ‘s expansion — it added 50 stocks from 2020 to the third quarter of this year, more than the 30 between 2010 and 2020. The index tracks the performance of large- and mid-cap stocks. The South Asian giant recently displaced China to become the largest emerging market, according to the criteria of the MSCI IMI, which covers investable large-, mid- and small-cap stocks, Morgan Stanley said in a Sept. 17 note. As at Sept. 16, India’s weight in the index was 2.35%, while China’s was 2.24%, the investment bank added. The depth of the Indian market has also “improved significantly,” with its average daily turnover jumping fourfold since 2020, Liao said. The BSE Sensex index — which represents 30 of the country’s largest and most traded firms on the Bombay Stock Exchange — is up 14.8% year-to-date as of Sept. 17, while the benchmark Nifty 50 index is 16.7% higher. For comparison, the U.S.′ tech-heavy Nasdaq Composite is up around 19% since the start of the year, while the benchmark S & P 500 index is over 18% higher. Liao says she’s looking for opportunities in both large- and mid-cap names, and her strategy is to create a “well-balanced portfolio” with stocks that have strong fundamentals and business models over the medium- to longer-term. ‘Exciting opportunities’ One theme that presents “a lot of exciting opportunities” is consumption, says Liao. Within consumption, she is watching the premiumization wave, given the rise in the India’s middle- and high-income population. About 80% of Indian households in 2030 will be in the middle-income bracket, a report by the World Economic Forum and Bain & Company estimated in 2019, up from about 50% that year. And the nation’s middle class that will drive 75% of consumer spending in 2030, the report added. Meanwhile, about 20 million will join the high-income bracket, it said. Among the names Liao is betting on is automaker Tata Motors . The company’s SUV Tata Punch has been “one of the bestselling models in India so far this year,” with a substantial number of buyers being first-time car owners, Liao said. With first-time owners “going straight for the SUV instead of the small-size sedan which has typically been the preferred choice,” the portfolio manager notes, demand for cars of superior quality — like the ones offered by Tata Motors — is on the rise. As for the health-care sector, she named private operators Apollo Hospitals and Max Healthcare Institute as stocks she’s watching as demand for quality health care grows. In the financial services sector, Liao is betting on asset and wealth manager 360 One Wam and HDFC Life Insurance. She describes both companies as “premium service providers” for the ultra-high-net-worth and sees them growing in tandem with the nation’s ultra-rich population. Elsewhere, in the tourism and hospitality industry, the portfolio manager likes hotel chain Indian Hotels — the company behind premium brands like Taj, Vivanta and Ginger. Her optimism comes from its “incredibly strong brand equity and very good operations.” ‘High quality names’ Another sector that Liao is keeping a close watch on is financials, given that its “valuations are quite reasonable in the context of the wider Indian market.” “We think this thesis will stay unchanged in the medium to long-term.” She especially likes “high quality” private banks like HDFC Bank , ICICI Bank and Kotak Mahindra Bank . Liao expects to see those banks growing alongside India’s financialization push, and taking share from the public banks. “The valuations of these private banks are reasonable. So, I think that these large, proven names have a good place in the portfolio,” she added.
