I think some of the best UK stocks to buy now might have little to do with UK companies. I see huge growth opportunities for my portfolio in the Indian stock market.
So why India?
The pandemic has devastated the Indian economy but it is now in recovery mode. The World Bank predicts that India will overtake China as the world’s fastest growing large economy in 2022.
India is also entering a digital revolution. With more than 800 million internet users, a number of Indian tech start-ups have announced their intention to go public. Goldman Sachs analysts estimate at nearly $ 400 billion in market capitalization could be added from new Indian IPOs over the next three years.
India appears to be a hotbed of economic growth for decades to come. So how do I get exposure to this explosive growth as a UK investor? I can actually watch the London Stock Exchange.
UK equities with Indian exposure
JPMorgan Indian Investment Trust (LSE: JII) is the largest Indian investment trust on the LSE by market cap, which could be a first stop for investors, stop me. It aims to outperform the MSCI India index. But it has failed in the past 10 years. Other smaller trusts such as Aberdeen New India Investment Trust and Ashoka India Equity Investment Trust performed better.
It was a part of the FTSE 250 until the pandemic plunged the Indian economy into a recession. Its share price fell 30% and the market cap of Â£ 412million was too low to stay in the FTSE 250. But it is interesting to note that it has outperformed the FTSE 250 index since the start of the year. year (18.5% against 14%). Its market capitalization has also reached Â£ 640million and a return to the index could be considered.
The trust is trading almost 18% off the NAV and I think it looks cheap. But I would not buy it at the moment because the balance sheet against the benchmark is worrying. I would look elsewhere to capitalize on Indian growth.
An alternative investment trust
Pacific Horizon Investment Trust (LSE: PHI) intrigues me. Baillie Gifford manages the trust, as well as a number of popular entities such as Scottish Mortgage Investment Trust. Confidence is up 23% this year and has reported 345% in the past five years.
He invests in the Asia-Pacific markets, but Indian stocks are a growing part of the portfolio. Indian companies today represent more than 20% of the trust. Like other Baillie Gifford investment funds, Pacific Horizon invests in private companies, including three Indian companies: Delhivery, an e-commerce delivery and logistics company; Dailyhunt, an online video maker; and Star Health, India’s largest healthcare provider. These investments could help capture growth in India that other investment trusts cannot.
Chinese stocks represent just under 30% of the portfolio, which can be of concern. The fund offers exposure to Indian public and private companies, but is sensitive to the volatility and risk of Chinese equities.
Risks and Rewards
There are unique geopolitical risks with India. Persistent tensions exist with Pakistan to the west and China to the north. In addition, currency risks are inevitable when buying UK shares of companies whose income is primarily outside the UK. The Indian government also needs reforms to capitalize on the potential of the Indian economy. Despite the risks, I am optimistic about India’s growth and will look to build a position in the coming months.
Nathan Marks owns shares in Scottish Mortgage Investment Trust. The Motley Fool UK has no position in any of the stocks mentioned. The opinions expressed on the companies mentioned in this article are those of the author and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that considering a wide range of ideas makes us better investors.