October 25, 2024

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A bronze bull statue outside the Bombay Stock Exchange building in Mumbai, India (Bloomberg)

More South Korean investors are eyeing lucrative opportunities in the booming Indian market with its equity funds yielding more returns than those comprised of US and Japanese stocks.

In June, India’s total stock market value reached the $5 trillion milestone, making it one of the world’s biggest markets, following those of the US, China and Japan. It has been running neck-and-neck with that of Hong Kong.

With remaining hurdles in foreign direct investment regarding registration and taxation, local retail investors are choosing to bet on the growth of the Indian economy through indirect investment vehicles such as fund products.

India-tied funds operated here have attracted assets worth 1.08 trillion won ($788 billion) this year, according to market intelligence firm FnGuide's data released on Aug. 1.

This was the second-largest influx seen among foreign funds by region, following an inflow of 5.53 trillion won for the funds tracking the US economy.

The India-tied funds garnered the highest profit by region, recording 25.49 percent profit this year, surpassing the 21.04 percent of the US, 13.61 percent of Russia, 12.85 percent of Vietnam, 11.17 percent of Japan and 8.28 percent of Europe.

As India-related funds are witnessing a higher inflow of assets, exchange-traded funds tracking the performance of India-domiciled companies are seeing an influx of assets. Individual investors snapped up investments in India-tied ETFs, net purchasing 394 billion won this year until July.

Currently, seven India-focused ETFs are listed on the Korea Exchange. While five products track the Nifty 50, a benchmark index for the Indian stock market, two are thematic ETFs, each tracking India's top conglomerate Tata Group and the companies targeting the country’s consumer goods market.

The money move reflects investors’ anticipation of India's burgeoning economy, bolstered by its population of over 1.4 billion.

Akshay Zutshi, vice president at Lighthouse Canton, a Singapore-based asset manager that specializes in the Indian market, suggested four sectors that could present attractive investment opportunities: healthcare and insurance, the renewable energy sector, residential real estate, and the infrastructure and manufacturing sectors.

“While Indian equities trade at a premium compared to emerging market peers, this is justified by superior growth prospects and solid fundamentals, such as high cash flows, low leverage, and strong return on equity,” Zutshi said via email to The Korea Herald.

“The overall outlook for investment into the Indian stock market remains very positive over the medium to long term.”

Though the Indian stock market is associated with emerging market risks, market experts consider it strong enough to handle volatility.

“The Indian market has a good cushion against external and internal volatility. It is now able to bounce back quickly after the pullbacks," said Manish Jain, director of international business at Mirae Asset Capital Markets (India) Private Limited, Korean asset manager Mirae Asset Securities' subsidiary in the country.

While geopolitical tension, the US presidential election, and the US Federal Reserve’s monetary policy are potential global risk factors that can create volatility in the Indian market, adjustments to asset class tax schemes and regulations that can affect fair price discovery could be risks on the domestic side, Jain suggested via email.

“The Indian economy is showing signs of secular growth. India is the fastest-growing economy in the world today, ranked No. 5 by nominal gross domestic product only after the US, China, Japan and Germany,” Jain said.

“It is expected to surpass Germany and Japan in the next three to four years and become the third largest economy,” he said, referring to the projection suggested by the global investment banking firm Jefferies.

By Im Eun-byel (silverstar@heraldcorp.com)