A cut in Indian economic growth forecasts by the IMF hasn’t stopped FundCalibre research director Juliet Schooling Latter from putting 100 per cent of her monthly pension contribution into Indian equity strategies.
The downgrade of India’s growth projections for 2019 from 7 per cent to 6.1 per cent earlier this month was mirrored by underperformance of the MSCI India index compared with the broad MSCI Emerging Markets benchmark.
As the below chart shows, MSCI India fell to a 3.11 per cent loss in the month of October (to 25 October) in sterling terms, as the MSCI Emerging Markets index was down by just 0.49 per cent.
Performance of MSCI Emerging Markets vs MSCI India over one month
Source: FE Analytics
Nevertheless, Schooling Latter said it has remained her “preferred emerging market for the best part of a decade”.
“Home to 1.37 billion people – twice the population of Europe –27 per cent of whom are under the age of 15, it’s always been a young, entrepreneurial country,” she explained.
She added that since Narendra Modi became prime minister in 2004 the country has “gone from strength to strength” and has had a significant impact on the ease with which businesses can operate.
The Indian prime minister has introduced reforms to help make India global manufacturing hub by encouraging multinational companies to make their products in the country, most notably cutting corporate tax rates to 15 per cent for manufacturers.
“As a result,” Schooling Latter said, “India has gone from being one of the least competitive Asian countries to one of the most competitive and the most competitive of all for manufacturers.”
With a preference for Indian equities when it comes to her pension Latter recommends three funds for “like-minded investors”.
As such, Schooling Latter has changed her monthly pension contributions to invest 100 per cent in Indian equity funds.
“It’s a high-risk market and won’t be for every investor, but I’ve got a good 15 years or so until I retire and, by investing monthly, the almost certain volatility of the Indian equity market won’t upset me in the short term,” she explained.
“Last year was tough: the economy has gone through a cyclical turndown and small and medium-sized companies suffered, but I now think it is set up for long-term sustainable growth.”
Below, Schooling Latter highlights the funds that she is investing her monthly pension contributions in.
GS India Equity Portfolio
The first fund on the FundCalibre research head’s list is the $1.9bn GS India Equity Portfolio overseen by Goldman Sachs Asset Management’s Hiren Dasani shares Schooling Latter’s belief that the Indian equity market is entrepreneurially up-and-coming.
“Dasani says that ‘Like the population, investment opportunities in India are still young and growing’,” explained Schooling Latter.
“This fund invests in companies of all sizes and the team never say no to a meeting, believing they can always learn something about the industry, even if it they have no intention of investing.”
Running a bottom-up investment style, focusing on small and mid-cap companies, as well as non-benchmarked ideas, Dasani does not have to take a top-down perspective, meaning that the portfolio allocations are made without macroeconomic calls.
Its top three holdings including technology firm Infosys at 8.7 per cent, followed by second-placed ICICI Bank representing 4.8 per cent of the portfolio and AXIS Bank, which makes up 4.6 per cent.
Performance of fund vs sector & benchmark over 5yrs
Source: FE Analytics
GS India Equity Portfolio has made a total return of 73.41 per cent over the past five years, outperforming the MSCI India IMI index which made 52.07 per cent returns over the same time frame. The fund has an ongoing charges figure (OCF) of 1.05 per cent.
IIFL India Equity Opportunities
Schooling Latter’s second recommendation is the $55.3m offshore IIFL India Equity Opportunities fund, overseen by Jonathan Schiessl.
“This is also a multi-cap fund but the managers have a focus on companies that treat minority shareholders well,” she explained. “It’s also very concentrated in a smaller number of businesses, although sector diversification is still strong.”
Schiessl invests in a concentrated portfolio of long-term, high conviction companies that should benefit from the India growth story in the years ahead.
Performance of fund vs sector & benchmark over 5yrs
Source: FE Analytics
IIFL India Equity Opportunities fund has made a gain of 43.25 per cent over the past five years underperforming the benchmark MSCI India return of 52 per cent. The fund has an OCF of 1.83 per cent.
Stewart Investors Indian Subcontinent Sustainability
The final fund Schooling Latter is putting her pension contributions is the £288.8m Stewart Investors Indian Subcontinent Sustainability fund.
“This fund has a wider remit and invests in companies which are either based in, or have major operations in India, Pakistan, Sri Lanka or Bangladesh,” said the FundCalibre research head.
“The managers tend to have a concentrated portfolio of around 35 stocks, which are chosen from across the market-cap spectrum and which can contribute to and benefit from the sustainable development of the countries in which they operate.”
Launched in November 2006, Stewart Investors Indian Subcontinent Sustainability is managed by Alpha Manager David Gait and Sashi Reddy.
The managers invest for the long-term, targeting the highest quality companies.
“One could expect that there will be times when the fund is out of favour with the wider market, such as when riskier stocks are in demand or when market participants are chasing certain themes,” noted Square Mile Investment Consulting & Research analysts.
“It can look and act very differently from the MSCI India index, and as such, it is unlikely to suit investors seeking indexlike returns.
“However, this is a strategy that tries to address some of the varied risks that investors face in this part of the world, through a process that is disciplined, thoughtful and focused on the long term.”
Performance of fund vs sector & benchmark over 5yrs
Source: FE Analytics
Stewart Investors Indian Subcontinent Sustainability has made a total return of 66.05 per cent over the past five years, outperforming the MSCI India index which made 52.01 per cent returns over the same time frame. The fund has a yield of 0.05 per cent and has an OCF of 1.11 per cent.