Kate Marshall 14 June 2018
Like most stock markets, India was affected earlier this year by concerns over rising inflation and interest rates worldwide.
The potential for a trade war between the US and China also didn't help.
But while global markets have since recovered, India has continued to struggle. It's fallen 5.2% so far this year.
Why has the Indian market dropped?
Some people think Narendra Modi won't be re-elected as Prime Minister next year. Investors haven't taken too well to this, as Modi wants to make it easier for businesses to thrive in India. There's also concern the government's finances aren't as strong as previously thought.
In February, a 10% tax on long-term gains from shares was announced in India's Union Budget, and this also had an impact. And a rising oil price hasn't helped because India is one of the world's largest importers of oil.
Funds investing in Indian shares have been affected by the volatility. Here I take a look at what's happened to the Jupiter India Fund, our favourite choice for investing in India, and consider the longer-term prospects.
How has Jupiter India performed?
It's been a tough year for the fund. Over 12 months it's fallen 8.9%* compared with a gain of 4.2% for the FTSE India Index. Past performance isn't a guide to the future though.
|Annual percentage growth|
| May 13 -
| May 14 -
| May 15 -
| May 16 -
| May 17 -
Some of the fund's investments in the financials sector, such as state-owned banks, have fallen in value and hurt performance. Avinash Vazirani, the fund's manager, doesn't invest much in IT services companies and this also hasn't helped. They've performed well recently, so the fund missed out on some of the gains.
But he's confident the way the fund is invested will be good for performance over the long term, although there are no guarantees.
India wants to increase the number of people with access to financial products and services. This could be good news for the financials businesses in the fund. Banks, asset managers, and insurance companies could all benefit as more people save and direct money to legitimate financial institutions.
In the IT services sector, he thinks growth won't be high enough. These IT companies service other businesses that are starting to use new or different technologies, such as cloud computing. So if they don't adapt quickly enough, this could impact their profits.
The fund also had some individual stock issues, such as oil company Hindustan Petroleum. In the past Indian oil companies have had to pay and subsidise higher oil prices alongside the government. This keeps fuel costs lower for consumers, but it increases costs for these companies.
Hindustan Petroleum is still the fund's largest investment.
Avinash Vazirani thinks it'll recover. It recently announced higher-than-expected earnings. And while most of its profits come from petrol and diesel, it has strong business in other areas such as lubricants and a pipeline network.
The fund's weaker performance is over a short period. There's a lot of change taking place in India at the moment, and the manager has aimed to invest in companies he thinks will benefit. This will be a gradual process though and a long-term outlook is essential when it comes to investing in a higher-risk and volatile emerging market such as India.
Avinash Vazirani has an impressive long-term record. He's invested in Asian and Indian markets for more than 20 years.
Our analysis shows he's been successful investing in companies with strong growth prospects, which have been overlooked by other investors.
We think he's one of few fund managers able to perform better than the broader Indian stock market over the long run, although past performance should not be seen as a guide to future returns. Investments fall as well as rise in value so investors could make a loss.
What does the future hold for India?
Narendra Modi has introduced plenty of reform since he was elected Prime Minister in 2014. He wants to mark India's place as a global leader and lay the foundations for stronger growth.
'India Stack' is one of his latest ideas to modernise India. It’s a huge software platform that could bring India's population into the digital age.
For instance, identifying everyone's identity has historically been a big problem for India. 'India Stack' solves this by its unique identification system. It means India's 1.3 billion people have a more effective way of accessing basic education, health, food services, and other benefits. It allows more people to open a bank account and make them part of the formal economy.
It's also an opportunity for businesses to reach more people. Bank accounts, taxes, insurance, driving licenses and mobile phone connections are all linked to the system. Customer information is stored online and provides a single and transparent way to view their needs.
The pace and extent of reform brings disruption with it. We saw this recently when most of India's cash was removed from its economy to help crackdown on corruption, and a streamlined and more efficient tax regime was introduced.
But the impact of all this change on the economy and businesses could be huge. India is becoming an economic force to be reckoned with, so we still think investing in India offers the opportunity for significant growth, though this will be over many years rather than months.
This article isn’t personal advice. If you’re not sure whether an investment is right for you, please seek advice.