The fund's manager reckons that it will become more exposed to cyclical sectors such as industrials and financials, taking a broadly upbeat view of the Indian economy against a background of expected rising growth rates.
India has had its share of problems – such as a surge in coronavirus cases – but underlying forces are set fair for robust, broad-based growth which investors cannot afford to ignore, a fund manager says.
Gaurav Narain, who is head of equities at Ocean Dial Asset Management, and fund advisor of the India Capital Growth Fund, is unsurprisingly bullish about India but argues that he has plenty of reasons for his ebullient stance.
“The next five years are going to be the best growth period for India…there have been so many structural reforms that will be very good for growth going forward,” he said.
The Indian economy is diversified; no single sector dominates the country, as is the case with some other Asian countries. Also, no single company dominates a sector – another contrast with some countries, he told this news service in a recent call. The fund also shies away from firms that operate in a government-controlled/dominated sector, where governance can be a problem.
The fund looks for firms which are able to generate double-digit earnings growth. For example, Narain likes consumer sector businesses and these account for about 24 per cent of the fund’s entire portfolio. Narain also likes financial services firms, such as private sector banks (not those which are still under the protection of the government). In fact, they make up 20 per cent of the fund’s portfolio (total net asset value of £119 million).
“Private banks are growing by healthy double-digits and these are competing with inefficient government-owned banks,” Narain said. Asked why financials account for a big chunk of the fund, Narain said that after a tough economic period followed by an initial set of reforms post-2016, the financial services sector managed to ride through the COVID-19 pandemic without a great deal of pain, suggesting that a good deal of the changes required had been made already.
“Banking has actually come out of this pretty well,” he said.
This news service interviewed Narain at a time when India, while beset with some of the struggles facing emerging market countries, is seen to some extent as benefiting from a pivot in global supply chains from China. Traditionally strong in areas such as software and agriculture, the country’s economy has been shaken up by the Narendra Modi-led administration, whether it has involved cracking down on unregulated cash transactions, strengthening banks or, controversially, its proposals to reform agriculture – raising questions about price guarantees. (Such proposals have prompted weeks of protests in the country.)
With its relatively youthful demographics, rising affluent middle class and a hunger for consumer goods, portfolio managers such as Narain see a lot of upside.