INVESTING IDEAS: Could you make money investing in India’s growing middle classes?

Investors hunting returns in India have long savoured its potential — with opportunities as vast as the billion-strong population.
But the country’s appeal to long-term savers has a hefty price tag — short-term lurches in performance, which can lead to big losses.
The sheer scope for growth in India has long been a draw for investors with an appetite for risky bets.
Running the numbers: Investing in India's middle classes could prove profitable over the long-term

Running the numbers: Investing in India’s middle classes could prove profitable over the long-term
Second only in population to China, it has an average age of just 26, and a wealthy and rapidly growing middle class.
So far British investors have piled £12 billion into Indian funds, according to analysts FE Trustnet, as well as £36 billion into Far East funds with exposure to India, figures from the Investment Management Association show. Five years ago, only 16 funds offered direct investment in India. Today, there are 23.
A handful of UK fund managers, including Aberdeen, Jupiter, First State and Schroder, are targeting the country’s millions of aspirational workers.
In particular, they’re keen to tap into the surge in the middle class — expected to hit 250 million by 2015, up from just 50 million in 2005 — as more move to cities to take up jobs in burgeoning high-tech industries.
‘As families earn more, they look to spend more, and there are an awful lot of companies making goods to be bought,’ says Justin Modray of financial investment website CandidMoney.com.
 
In the Jupiter India fund, consumer goods companies make up more than a quarter of all the stocks picked. They include offshoots of well-known multinational names such as Hindustan Unilever and Nestle India.
Hindustan Unilever has surging sales of Bru coffee, Lakme beauty products and Ayush Therapy healthcare and personal care products.
But more expensive goods are also on the rise.
India’s love affair with the motorbike, because it suits rural and city living and is cheaper than cars,  shows no sign of cooling.
From souped-up motorcycles to fuel-efficient scooters, bike maker Hero MotoCorp — formerly Hero Honda Motors — sells more than three million bikes a year.
As the world’s largest motorbike maker, it exports to Africa, Asia, Eastern Europe and Latin America.
Hero is the fifth-biggest stock in the Aberdeen Global India Equity fund.
‘It’s one of the world’s largest producers of motorcycles, and the domestic consumption in India is benefiting sales — up by 17 per cent last year alone,’ says fund manager Hugh Young.
‘It is also a financially strong business with plenty of cash on its balance sheet.’ 
Some 1.36 million motorbikes were sold in India in May alone, industry figures show. Such success stories have boosted the country’s popularity with investors, but they don’t face an easy ride.
‘Investing in India is as much about avoiding its many duds — there are more than 7,000 listed companies — as it is about picking winners,’ says Mr Young.
The country also faces plenty of economic hurdles, warns Adrian Lowcock, investment manager at financial adviser Bestinvest. 
‘The political system is complex and incredibly bureaucratic. Weak political leadership has given us a lack of consistent policies, which has failed to curb government spending.’ This has been reflected in overall fund performances for UK investors.
India’s major stock market, the Sensex, slumped 20 per cent in 2011.
The continuing economic struggles have hobbled many companies’ growth and profitability.
UK investors who put money into an India fund a year ago are nursing hefty losses.
Over the past year, the best-performing fund has been the First State Indian Subcontinent Fund. But it is down by 18  per cent, according to analysts Morningstar.
Anyone who put £1,000 in an Indian fund 12 months ago has, on average, lost £240.

Invest in emerging markets

If a direct investment in India is too much of a risk, it could be worth looking into a fund that invests in other countries, too, says Mr Modray of Candid Money.com.
The choice is a global emerging markets fund — still riskier than usual, though it spreads your cash across companies in different countries — or a Bric fund investing in Brazil, Russia, India and China.
This is Money’s fund tips round-up experts suggestions for your investments and Isa. 
However, the average Indian fund is up 14 per cent on more than three years ago. And £1,000 put into table-topping the First State Indian fund in 2009 would now be worth £1,478.
Over five years, the best-performing fund is again First State Indian, turning £1,000 into £1,617 — while the worst is the HSBC GIF Indian Equity fund, which would have lost you £89.
So is now a better time to put your money into India compared with three or five years ago?
It all depends on your long-term investment goals, says Tim Cockerill of wealth manager Rowan Dartington. ‘If you’re prepared to invest in India, be ready to knuckle down for ten to 15 years. 
‘But the recent falling stock market does mean it’s less expensive to buy companies at the moment.’

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