New Star sees India as one of the world’s biggest and fastest growing economies. The company says the Indian economy has grown at an average of 8.8 per cent a year over the past four years and is estimated to have grown 8.7 per cent over the year to March 2008. It feels local knowledge and research, provided by Tata, is crucial to the success of the fund because the Indian market is complicated and constantly changing.
The fund will aim for growth by investing in around 40 Indian stocks based on growth at a reasonable price. Although the portfolio will be concentrated to 40 holdings, the fund will diversify across sectors and stocks.
The stocks will tend to be bigger companies that are undervalued in relation to their growth potential, as these have better liquidity than smaller companies. Suitable stocks will be identified through the Tata’s ability to anticipate trends and events to stay ahead of the market.
In-depth research is vital to determine what is a reasonable price for the potential growth, so bottom-up research is complemented by top-down analysis, with the intention of getting the best returns for investors without taking too much risk.
Tata will look for firms that have a sustainable competitive advantage, good business strategies, a solid financial base and quality management. These attributes should enable them to outperform during both strong and weak market conditions.
India’s economic growth is being fuelled by domestic consumption, driven by a growing middle class, a low level of consumer debt and infrastructure spending. India also has a young, educated and English–speaking workforce that is attracting investment, boosting industrial and service sector growth. Sectors focused on infrastructure and domestic consumption expected to grow and this fund stands to reap the rewards.
However, the concentrated nature of this fund relative to some portfolios containing around 100 stocks may increase the risks of investing in a market that can be volatile.