2 UK trusts to buy now as Indian economic growth explodes

The Indian economy looks to be outpacing China’s. Nathan Marks looks for UK shares with exposure to this explosive growth.

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I believe some of the best UK shares to buy now could have little to do with UK companies. I see huge growth opportunities for my portfolio in India’s stock market.

So why India?

The pandemic ravaged India’s economy but it is now in recovery mode. The World Bank is forecasting India to surpass China as the world’s fastest growing major economy in 2022.

India is also entering a digital revolution. With over 800 million internet users, a number of Indian technology start-ups have announced plans to go public. Goldman Sachs analysts estimate nearly $400bn of market cap could be added from new Indian IPOs in the next three years. 

India looks like a hotbed for economic growth for decades to come. So how could I gain exposure to this explosive growth as a UK investor? I can actually look to the London Stock Exchange.

UK Shares with Indian exposure

JPMorgan Indian Investment Trust (LSE:JII) is the biggest Indian investment trust on the LSE by market cap so could be a first stop for investors stop me. It aims to outperform the MSCI India Index. But it has fallen short over the past 10 years. Other smaller trusts such as Aberdeen New India Investment Trust and Ashoka India Equity Investment Trust have performed better.

It was a FTSE 250 constituent until the pandemic sank the Indian economy into a recession. Its share price dropped 30% and the market cap of £412m was too low to remain in the FTSE 250. But interestingly, it is outperforming the FTSE 250 index year to date (18.5% vs 14%). It’s market cap has also risen to £640m and a return to the index may be on the cards.

The trust is trading at an almost 18% discount to net asset value and I believe it looks cheap. But I wouldn’t buy it at the moment as the track record against the benchmark is concerning. I would look elsewhere to capitalise 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. The trust is up 23% this year and has returned an eye-watering 345% over the last five years.

It invests in Asia Pacific markets but Indian equities are a growing proportion of the portfolio. Indian companies make up over 20% of the trust today. Similar to other Baillie Gifford investment trusts, Pacific Horizon invests in private companies, including three Indian firms: Delhivery, a delivery e-commerce and logistics company; Dailyhunt, an online video maker; and Star Health, India’s largest healthcare provider. These investments could help to capture growth in India that other investment trusts can’t.

Chinese equities make up a little under 30% of the portfolio which may be a cause for concern. The fund provides exposure to Indian public and private companies but is susceptible to Chinese equity volatility and risk.  

Risks and rewards

There are unique geopolitical risks with India. Ongoing tensions exist with Pakistan to the west and China to the north. Additionally, currency risks are unavoidable when buying UK shares of companies with revenues primarily outside of the UK. The Indian government also need reforms to capitalise on the Indian economy’s potential. Despite the risks, I’m bullish on India’s growth and will be looking to build a position in the coming months. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Nathan Marks owns shares in Scottish Mortgage Investment Trust. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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