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For the last couple of years, India has been emerging as a separate asset class, away from the emerging markets basket.

This trend, said Macquarie Capital's Viktor Shvets in an exclusive conversation with Moneycontrol, will continue due to India’s “strong structural position” similar to the US.

Shvets compares what is happening to India as what was seen in Japan. "Gradually over the last five years, Japan has been emerging as an independent asset class after being ignored for the last 25 years. I think the same happening in India. So, instead of treating it as part of the EM universe, more and more funds will be looking at India separate from the EM universe, either through dedicated India funds or through the global funds or through industry specific funds. And therefore, there will be more research done on India," he noted.

This shift in interest he said could result in more research on India to see whether it could be an equity and fixed income market, a shift from how India was viewed earlier.

"In the past, international investors never really gone beyond some of the larger Indian companies. I think today that is not true anymore. And I think that will become even less true as we go forward. So, India has a capacity to emerge as an independent asset class," he added.

Explaining why he believes this change could take place, Shvets compared India to the United States. Like US, he noted, India is aiding labour, capital, and growing multi-factor productivity which cannot take place in other western countries like UK, Canada or even Japan. This he believes can give India a "very strong structural backbone".

Another advantage for India is its geopolitical position. "I describe India as too big to be small, too small to be big. It's too big to belong in any grouping, but too small to sort of punch its own way. And so it's in a perfect geopolitical position of benefiting from whatever geopolitical shifts are likely to happen on a global basis," he said.

Watch the full conversation with Victor Shvets here.

India, Shvets noted is also continuously investing in capital efficiently. "We can debate whether 10 years from now that will be true, but India is still short of capital in a meaningful way. That's why incremental capital output ratios in India are good. That's why overall leverage of India economy is not increasing. And that's why Indian corporate return on equities are one of the highest on a global basis," he added.

On the other hand, there are also some weaknesses, similar to the US - social and institutional. In the US, Shvets explained, while the economy is strong, there are "massive" institutional challenges. On the other hand, Europe, he says doesn't have institutional or political challenges much, but it could structurally have massive problems to overcome. Similar trends to Europe can also be seen in China.

For India, he said it will depend on how they can resolve those social and institutional problems. But, as long as those are kept under control, structural forces will continue to drive India at least for the next five to 10 years, Shvets believes.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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