Two Takes On India

A year ago this week, I came excruciatingly close to investing a chunk of my SIPP in an investment fund focused on India. But in the end, I didn't, put off by reports I had read about the level of leverage that Indian firms were exposed to.

So my money stayed invested in the UK -- chiefly via FTSE All-Share and FTSE 250 trackers -- and in the Pacific Rim economies, via Legal & General's Pacific Index tracker.

My fears were misplaced, it seems. Jupiter's India fund, the one I'd been contemplating, has since soared by 80%, easily outstripping the FTSE gains that I've made, and even beating the Pacific Index fund's performance by a decent margin.

Eastern promise

The trouble is, the investment case for India remains solid. The UK's GDP will grow by about 1% this year -- if we're lucky. India? 7-8% or so, just like last year and the year before.

And only a small fraction of that GDP is export-based: 19% of output is exported, if we're including 'invisible' items such as software consultancy, and just 16% goes overseas if we're counting physical trade goods. That, as Jupiter's fund manager Avinash Vazirani notes, is a lot less than in many other emerging markets, which are more strongly tied to the performance of their Western customers.

Throw in the usual figures about an emerging affluent middle class, a youth-oriented demographic profile, and a soon-to-boom workforce, and the picture starts to get even rosier.

In short, as British growth sags, India looks set to sparkle. But with shares up 80% on their March 2009 lows, is now the time to buy in?

It's a question I've asked two fund managers: Jupiter's Vazirani, and Sanjiv Duggal, the Singapore-based manager of HSBC's flagship India fund -- the largest offshore India fund in the world, with over $6 billion over assets under management.

Take the plunge

Jupiter's Vazirani is reasonably bullish. Describing himself as a 'GARP stock picker' -- GARP stands for 'Growth At a Reasonable Price' -- his fund has comfortably beaten the benchmark since its launch. Under a previous reincarnation, prior to Jupiter's involvement, the fund dates back almost fifteen years.

"We're not traders," emphasises Vazirani. "We're long-term buy and hold: we're looking for companies with good management, good corporate governance, above average growth -- and which are trading at a good price."

India, reckons Vazirani, is still a 'buy'. "December's quarterly earnings were ahead of estimates, and the GDP estimates are better than expected," he argues. "India isn't as cheap as it was last year, but it's still within its historic valuation range. It's certainly not at historically high levels."

More to the point, perhaps, his own money is where his mouth is. "A significant proportion of my own equity investments are in India," he stresses.

Buy on a dip

HSBC's Duggal also has a slug of his own personal wealth tied up in his fund -- including money intended for his twelve year old daughter, when she gets to 21.

And he too is bullish about India's long-term prospects, seeing real GDP growth outstrip the UK by a factor of two or three for the foreseeable future. The fund grew by a whopping 131% in 2009, comfortably beating the benchmark's 95% growth.

Manager of the fund since 1996, Duggal is emphatically not a stock-picker, he stresses.

"90% of our peer group are bottom-up stock-pickers, but we take more of a top-down approach, looking at where India is today, and where it's going -- and investing in sectors poised to benefit," he explains. At present, for instance, he's selling export-oriented technology and metal stocks, and buying a balance of defensive domestic stocks, such as power utilities -- as well as growth domestic stocks, such as industrials.

On the critical question of whether India is still, a 'buy', though, he's ambivalent.

"Valuations are 15% above the 5‑year average, and rather more above the 10‑year averages, and this has made us cautious in the near term," he concedes.

Fuelling his uncertainty is a wave of government asset sales that have been announced, several planned IPOs, and corporate cash calls. And small-cap stocks are also at highs relative to large-caps, which traditionally points to the possibility of a retail-led speculative boom.

"We expect share sales of US$20‑30 billion in the first four months of this year, and the sale of these holdings could serve as a dampener on the market," concedes Duggal.