India is set to become the world’s most populated country this year. However, the population isn’t the only thing thriving.
The economy is growing rapidly too. More people are migrating from rural villages to cities and that’s helped India overtake the UK economy to become the fifth largest in the world.
As India grows, and with it opportunities emerge, the country still has lots of growing pains to overcome.
Here’s how investors can consider this emerging global player through an environmental, social and governance (ESG) lens, and two fund case studies that are aiming to take advantage of India’s growth.
This article isn’t personal advice. If you're not sure if an investment is right for you, ask for financial advice. All investments can rise and fall in value, so you could get back less than you invest.
What are the environmental challenges?
Air pollution is a major concern in many Indian cities, with levels of pollution often exceeding international standards. This can have a significant impact on public health and the working population. There are lots of studies linking air pollution to increased rates of respiratory and cardiovascular diseases.
With a large portion of the population lacking access to proper waste disposal facilities, waste management is another pressing issue. This leads to littering and open dumping, which can have negative impacts on both the environment and public health.
Problems like these will likely have a big impact on the continued growth of India and those who want to invest there. Some investors might even want to use their stake to help alleviate these environmental concerns.
Climate change is also another major environmental risk for investors to think about and this is a growing concern in India. Rising temperatures, changing precipitation patterns, and more frequent natural disasters are threatening the country's agricultural and economic stability.
The country’s pledged to reach net zero emissions by 2070. While many don’t think this is ambitious enough, India is walking a tightrope. As a developing nation, it’s undergoing vast industrialisation which is helping to lift millions out of poverty, but this process is heavily reliant on coal.
India’s trying to change that though. About 80% of India’s green finance is currently being used to build the country’s renewable capacity.
The country is also working towards full electrification of its transport systems and has committed to replace petrol and diesel with compressed natural gas in the short term. And with around 300 sunny days in a year, the deployment of solar is a big focus.
For investors looking to finance the renewable revolution, India could be an attractive option.
Rising social opportunities
Despite India's economic growth, poverty and inequality remain a challenge. The root causes of poverty in India historically included low levels of education, lack of access to basic healthcare, limited job opportunities, and corruption.
However, investors shouldn’t overlook the incredible progress the country has made. The country's economic growth has led to the creation of new job opportunities, particularly in the service sector. This helped lift over 400 million people out of poverty between 2005 and 2021, reducing the poverty rate from 55% to 16%.
As the population of India and its middle class grows, so does the need for adequate healthcare, education, and infrastructure to support the country’s development. This could present an opportunity to investors.
Gender equality is another social factor that investors should consider when assessing opportunities in India. Despite progress in recent years, women often face challenges in accessing education, employment, and healthcare.
About a quarter of Indians say there’s ‘a lot of discrimination’ against women in their country.
This can have a negative impact on the country's functioning of society, as well as its economic growth. Companies that can demonstrate their commitment to gender equality are more likely to attract investment and be better positioned for long-term success.
Establishing good governance
Compared to other South Asian countries, India generally has better political rights, ease of doing business, and government effectiveness.
But while India performs better than its peers, the quality of corporate governance in the country is generally still considered to be low. Weak corporate governance can lead to companies making decisions that aren’t in the best interest of shareholders or other stakeholders.
Corruption is also a significant challenge in India, with high levels of bribery and influence-peddling affecting many sectors of the economy. This can foster a lack of trust in government institutions and undermine the rule of law, making it difficult for companies to do business in a fair and transparent manner.
Investors should assess whether companies have adequate measures in place to prevent corruption and bribery to make sure they’re not contributing to the problem. Anti-bribery and corruption policies are often a good proxy.
2 funds that are taking advantage of the growth in India
Remember, investing in funds isn't right for everyone. Investors should only invest if the fund's objectives are aligned with their own, and there's a specific need for the type of investment being made. Investors should understand the specific risks of a fund before they invest, and make sure any new investment forms part of a long-term diversified portfolio.
It's important to remember emerging markets are generally less well-regulated than the UK and it can sometimes be difficult to buy and sell investments in these areas. Political and economic instability are more likely, making these funds higher risk than those investing in more regulated and developed markets.
These funds also invest in smaller companies, which are more volatile and sometimes more difficult to trade than larger companies, increasing risk.
For more details on each fund and its risks, see the links to their factsheets and key investor information below.
Jupiter India
This fund is managed by Avinash Vazirani and focuses on small and medium-sized companies in India.
The manager looks for companies that generate good cash flows, have low debts, have something that differentiates them from the competition, and are run by a committed management team. Longer-term trends that could shape India's economy and how businesses operate are also considered.
Vazirani continually looks to make sure that companies are acting with integrity. He wants to improve opaque disclosures, scrutinise related party transactions, and ultimately make sure that investment decisions are made in the best interests of shareholders. He engaged with a number of companies on these issues last year.
Vazirani had concerns about the financial statements of a dairy company held in the fund, and the ability of the independent auditors to appropriately challenge management. He also felt that the employee stock options granted to senior employees were overly generous and not in line with market practice.
He voted against the company across these issues and continues to closely monitor corporate governance issues at the company.
Find out more about Jupiter India, including charges
Jupiter India Key Investor Information
Stewart Investors Indian Subcontinent Sustainability
This fund’s managed by Sashi Reddy and David Gait and mainly invests in Indian companies, though it can also invest in Pakistan, Sri Lanka, and Bangladesh.
Stewardship and sustainability form a core part of the team’s investment strategy. Reddy and Gait focus on companies they believe could benefit from and contribute to the sustainable development of the countries they're based in. They use ESG analysis to understand more about the quality of companies, and think their long-term investment horizon makes sustainability even more important.
Current investments include Dr Lal PathLabs, a healthcare company helping to reduce treatment costs by focusing on diagnostics, detection, and prevention. It’s built scale by offering affordable services, which also makes it harder for competitors to break into the market.
The team’s also conscious about the risk of climate change and flooding in the Indian subcontinent. They’ve previously engaged with Indian banks on how they integrate these risks into their lending calculations.
Find out more about Stewart Investors Indian Subcontinent Sustainability, including charges
Stewart Investors Indian Subcontinent Sustainability Key Investor Information