Stay Invested In India Mutual Funds On Bullish Growth Expectations

by: Zacks Funds

Much like the surge in our domestic markets, Indian benchmarks too have been enjoying a strong Bull Run. The S&P BSE SENSEX and CNX NIFTY have had solid gains of roughly 29.4% and 30.1%, respectively, so far this year. Both of them have also surged 30.1% and 31.4% over the last one-year period. The gains have come amid an election year, which was held in May. A resounding win by BJP-led coalition boosted markets. The gains continued and positive economic indicators too have kept the uptrend alive.

In a previous article in September, we had reported that economists predicted that India could move ahead of China in 2016. A senior economist in Singapore with CLSA had then estimated India to register 7.2% growth rate in 2016, while China is expected to grow at 7.1% during this period.

Now, we have more confirmation on that as Kotak Life Insurance recently predicted a similar trend. The head of equity from this Indian leading life insurance firm says that India's GDP will recover in FY16 above 6% and in FY17 the same will outperform China's GDP. Kotak is not alone in the optimistic outlook. Nomura, Moody's and Citigroup all have a bullish outlook.

Banking on the past performance of the Indian markets, mutual funds focused on India have already added decent gains. In fact, India region funds reportedly were the best gainers among the foreign equity funds. On average, the India funds surged 2.41%, while the average world equity mutual fund added 0.4% in November.

The momentum is likely to continue and adding certain top Zacks ranked funds would be a prudent investment decision. Before doing so, let's look at the optimistic predictions and India's recent growth story.

Moody's, Nomura, Citigroup: Bullish on India

Moody's Investors Service, a unit of Moody's Corporation (NYSE:MCO), believes strong domestic demand and diversified export market will propel India's economy in 2015 to grow between 5 to 6%. India's diversified export market also shields the country from economic concerns in China, Eurozone and Japan.

Moody's said:

"Employment and consumption are likely to rise in India, and the fall in global commodity prices will help to lower high inflation in the country."

Meanwhile, Nomura now expects India to expand at 5.5% in this fiscal year. A Nomura's economist said:

"We are positive about India's growth. Our medium term view is that macro policies - both the policies that RBI is likely to follow and reforms that the Government is likely to announce - will lead to lesser volatility going forward and more macro stability."

This is almost an echo of what Nomura had said in July this year. Nomura had acknowledged "landslide election victory by Prime Minister Narendra Modi, combined with Governor Raghuram Rajan at the helm of RBI" to be a "potential game changer for India." This led to Nomura's prediction that India will emerge as the single biggest emerging market turnaround story in the coming five years.

Citigroup also joined Moody's and Nomura in their optimistic outlook. A Citigroup report noted that India "really surprised" in 2014 and is expected to do so next year. Citigroup is projecting a 7% expansion in fiscal 2016-2017.

Citigroup stated:

"We believe India could make material strides in reforming the 'factors of production' in 2015 - land, labor, capital and enterprise. Faster than anticipated progress on these fronts could result in upsides to our FY16 GDP estimate of 6.5%."

Separately, while the Reserve Bank of India pegs India's GDP growth to be 5.5% in FY15, the World Bank is expecting a 5.6% expansion.

India's Growth Story

In September, ratings agency Standard & Poor's had raised India's credit outlook to "stable" from "negative." The agency said that the impressive mandate received by Prime Minister Narendra Modi has created an atmosphere which is favorable to economic reforms and fiscal prudence.

Many have attributed the 'Modi Factor' for the surge in Indian benchmarks. The new government had sparked off hopes of an economic recovery. Indian markets had soared banking on expectations that the Modi-led government would come to power and the surge continued following Modi's win.

According to S&P, the new government "will remedy, to varying degrees, the growth impediments-policy paralysis, energy supply bottlenecks, and administrative obstacles. The government's actions will likely add momentum to the incipient cyclical upswing evident in the economy."

Economic data have also been most favorable recently. India seems to be tiding over its inflationary woes. Retail inflation dropped to 5.52% in October from 6.46% in September. This is a crucial data as the Reserve Bank of India (RBI) tracks this to set key policy rates.

Talking of inflation, Nomura is looking at 2015 as the 'Goldilocks year' for India as it is poised to be a high growth and low inflation year. Nomura notes: "While we are still in the positive direction on growth, we think inflation will continue to moderate."

Separately, a rebound in the capital goods sector helped industrial output surge 2.5% in September from same period last year. This was the fastest gain in three months.

India Mutual Funds Enjoying Bull Run

According to Morningstar, India equity funds boast a year-to-date total return of roughly 44%. Among the International Equity Funds, the next in line is Pacific/Asia excluding-Japan with a gain of 5.2%. India's dominance is thus prominent. The World Stock has a 1.94% gain this year so far.

Among the best gainers from this sector are Matthews India Investor (MUTF:MINDX), Wasatch Emerging India (MUTF:WAINX) and Eaton Vance Greater India A (MUTF:ETGIX). These funds have gained 63.3%, 43.8% and 41.4%, respectively.

All these three funds should be great addition to your portfolio as all of them carry a Zacks Mutual Fund Rank #1 (Strong Buy).