Emerging Markets: what India’s Covid surge means for investors

Senior fund managers James Syme and Paul Wimborne specialise in Emerging Markets

Spotlight on Emerging Markets: A monthly update from James Syme and Paul Wimborne (pictured), managers of Pendal’s Global Emerging Markets Opportunities Fund


  • Indian equities outperformed the broader MSCI Emerging Markets Index for the third quarter in a row in Q1 2021, as Indian economic data and company results remained broadly supportive
  • But Covid-19 data in India has worsened sharply since mid-March, amid distressing stories of human tragedy
  • We remain positive on India for our two-year investment horizon, but we are alert to key near-term risks
  • Find out about Pendal Global Emerging Markets Opportunities Fund.

BEYOND the human tragedy, the emergence of a new wave of Covid-19 in India is a clear concern for investors.

Indian equities outperformed the broader MSCI EM Index for the third quarter in a row in Q1 2021, as Indian economic data and company results remained broadly supportive.

We have remained overweight India and this was a positive contributor to performance in March and in the first quarter.

Since then Covid data in India has worsened sharply — and we have all witnessed the distressing results in global media coverage.

Here we provide our view on some of the concerns for India and Indian equities.

In terms of Covid data, our preferred metric is the seven-day moving average of cases (and deaths) per million people, which normalises for reporting practices and country size.

Smoothed cases per million people bottomed at 8 in mid-February, before climbing to 17 in mid-March, 45 at the end of March and close to 100 in the first few days of April.

For context, several other emerging markets have seen a serious deterioration in Covid-19 case data in the last few weeks — often at a much higher level than in India. For example, Turkish smoothed cases per million started March at 100 and rose to about 600 in early April.
Download this article as a PDF

The key question is whether India will need to reimpose a strict national lockdown to control infections — as they did mid-2020.

For now, the increase in cases is localised (the state of Maharashtra is about one-third of new cases) and local lockdowns and travel restrictions should slow the rate of growth. Even so, near-term risks are elevated and case numbers in less-affected areas will need to be tightly monitored.

Ultimately, vaccinations need to be the solution.

India is one of the world’s biggest producers of vaccines, and has strong experience rolling out national medical (and other) programs. The vaccination rate picked up strongly in recent weeks to a rate of more than 3.5 million doses/day — although on a per capita basis, this is still well below most developed nations.

Experience in the UK and Israel suggests case numbers can be kept under control once half the population has been vaccinated.

More than 90 million people in India have now been vaccinated. At 100 million people per month, India may be five to six months from that threshold. If the vaccination rate can pick up yet further, that timeline would be shortened.

While there are reasons to be worried about Covid-19, the economy continues to deliver promising data.

All forms of PMI data have been strong in the year-to-date (March Manufacturing PMI, for example, was 55.4). Vehicle sales have continued a strong trend that started in October 2020.

With the central bank remaining on hold and fiscal policy remaining stimulative, the policy drivers of growth remain supportive.
Pendal named 2020 Fund Manager of the Year in Zenith Awards.
Drivers that have historically limited growth remain benign.

Credit growth has been restrained for several years, while excess liquidity in the banking system has risen to INR 7 trillion.

The trade deficit for February was US$94.4 billion, remaining at around its lowest level in a decade. This suggests plenty of potential for domestic demand to increase without balance of payments stress emerging.

Inflation has picked up on a weaker currency and higher commodity prices, but consensus estimates for the 12 months ahead is for CPI to reach only 4.7%. This should not threaten the economic recovery.

The Covid-19 situation is the most pressing concern.

We remain positive on India for our two-year investment horizon. But we also remain alert to key near-term risks.


About Pendal Global Emerging Markets Opportunities Fund

James Syme and Paul Wimborne are senior portfolio managers and co-managers of Pendal’s Global Emerging Markets Opportunities Fund.

The fund aims to add value through a combination of country allocation and individual stock selection.

The country allocation process is based on analysis of a country’s economic growth, monetary policy, market liquidity, currency, governance/politics and equity market valuation.

The stock selection process focuses on buying quality growth stocks at attractive valuations.

Find out more about Pendal Global Emerging Markets Opportunities Fund here.
Pendal is an independent, global investment management business focused on delivering superior investment returns for our clients through active management.

Contact a Pendal key account manager here. 

This article has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426 and the information contained within is current as at April 29, 2021. It is not to be published, or otherwise made available to any person other than the party to whom it is provided.
PFSL is the responsible entity and issuer of units in the Pendal Global Emerging Markets Opportunities Fund (Fund) ARSN: 159 605 811. A product disclosure statement (PDS) is available for the Fund and can be obtained by calling 1800 813 886 or visiting www.pendalgroup.com. You should obtain and consider the PDS before deciding whether to acquire, continue to hold or dispose of units in the Fund. An investment in the Fund is subject to investment risk, including possible delays in repayment of withdrawal proceeds and loss of income and principal invested.

This article is for general information purposes only, should not be considered as a comprehensive statement on any matter and should not be relied upon as such. It has been prepared without taking into account any recipient’s personal objectives, financial situation or needs. Because of this, recipients should, before acting on this information, consider its appropriateness having regard to their individual objectives, financial situation and needs. This information is not to be regarded as a securities recommendation.

The information in this article may contain material provided by third parties, is given in good faith and has been derived from sources believed to be accurate as at its issue date. While such material is published with necessary permission, and while all reasonable care has been taken to ensure that the information in this article is complete and correct, to the maximum extent permitted by law neither PFSL nor any company in the Pendal group accepts any responsibility or liability for the accuracy or completeness of this information.

Performance figures are calculated in accordance with the Financial Services Council (FSC) standards. Performance data (post-fee) assumes reinvestment of distributions and is calculated using exit prices, net of management costs. Performance data (pre-fee) is calculated by adding back management costs to the post-fee performance. Past performance is not a reliable indicator of future performance.

Any projections contained in this article are predictive and should not be relied upon when making an investment decision or recommendation. While we have used every effort to ensure that the assumptions on which the projections are based are reasonable, the projections may be based on incorrect assumptions or may not take into account known or unknown risks and uncertainties. The actual results may differ materially from these projections.