China seems to hog all the headlines, no doubt helped by hosting of the Olympic Games this year. In the investment world, there are now several funds that invest in China but, in contrast, there are very few funds that invest in a country which has just as much and arguably more potential – India. This is beginning to change at last as more firms recognise the attractions of India.
One of my favourite investment groups, Jupiter Asset Management, has recently launched the Jupiter India fund which represents its latest foray into emerging market investing. Why India? Its population is slightly smaller than China’s but I believe it is far more dynamic. This is because more than 650 million of its citizens are under 30. India is home to a quarter of the world’s youth. This is extremely important because economic development tends to be driven by younger people.
The demographics of China are not nearly as good. In 2020, the average age in India will be 29 compared with 37 in China and 45 in Western Europe. It looks like India will have a far more dynamic workforce than anywhere else in the world.
India’s reliance on a good monsoon season for its agriculture has been reducing year by year as its economy develops. The services sector now accounts for over 50 per cent of gross domestic product.
India’s stockmarket is far more mature than many people would expect. There are 7,000 quoted companies, with arguably far higher levels of corporate governance than elsewhere in the emerging markets.
Most interestingly, India’s growth has been driven by domestic demand, with exports making up only around 18 per cent of GDP. The Indian market clearly cannot be insulated completely from what is going on in the global economy but it seems unlikely that it will be derailed by a slowdown in the West. Once the urbanisation process has started, it is almost impossible to stop.
Infrastructure spend is extremely important. Without it, the wheels of industry will not be able to turn. It is estimated that India needs to spend almost $500bn by 2012 on roads, railways, ports and power. Regular readers of this column will know that this is a recurring theme in many of the funds I have featured.
The Jupiter India fund is managed by Avinash Vazirani. He joined Jupiter in July 2007 but has been investing in the Indian market for over 13 years. He describes himself as a pragmatic stockpicker who searches for companies with high growth potential but who is not prepared to pay the earth for them. He is also a high conviction investor, which means he is happy to build quite big positions in individual stocks where he has strong faith in the potential of the company. He will typically invest in big and medium-sized companies because this is where he can find the best growth rates.
It should be noted that many emerging markets are dominated by a small number of huge companies, such as Gazprom in Russia. India is not as skewed as many other emerging markets, although the energy sector does make up 25 per cent of the market. It is therefore not always helpful to compare the performance of a fund to the index.
Vazirani will not generally invest in a company unless he has met the management team. He regularly visits India to better understand a company’s vision and its ability to execute a business plan. He is a trained accountant and has a keen eye for spotting potential problems in company accounts.
It is my belief that emerging markets, particularly China and India, will dominate world economic thinking for decades to come. The Indian market has had an excellent run over the last few years but earnings’ growth remains strong, so there could be more growth in the short term.
It is, of course, right that most investors should first consider a global emerging markets fund before drilling down to these more specialised areas. However, in 10 years time, I believe that many of us will be thinking of Indian investment in assetallocation terms as we do the US, Europe and Japan. After all, it is not that long ago that Japanese and even continental European funds were considered rather exotic places for UK investors to put their money.
Mark Dampier is head of research at Hargreaves Lansdown