A decade ago, regional emerging markets funds were few and far between, yet today there is strong demand for individual country funds covering Russia, Brazil, China or India and it is the latter that I find particularly interesting.
India always seems to be in the shadow of China. There is no question that China has become absolutely integral to the global economy within a relatively short space of time but India is the more interes-ting story, in my view. It may be some way behind in its development but it is catching up and, despite a complicated bureaucracy, it is a democratic country and a truly capitalist economy.
India and China are also very different markets. Over the last few years, China has been reliant on its export sector while India only exports about 15 per cent of what it produces. So it is largely a domestic story and one that looks very strong over the long term. India’s population is 1.3 billion, of which 49 per cent are below the age of 25. This is a huge demographic advantage over China and the West, which are facing aging populations. It could make India far more dynamic over the next couple of decades, with 178 million individuals joining the workforce, giving rise to additional domestic demand.
Where should investors look for exposure? Jupiter is a fund management group that often attracts high-calibre managers and the Jupiter India fund managed by Avinash Vazirani is a prime example. He has 15 years’ experience of investing in India, having joined Jupiter in 2007.
I found my recent meeting with him fascinating and he made a couple of important points. First, that Indian shares are often dismissed as being too expensive relative to other emerging markets but this view ignored the tremendous earnings’ growth that is coming through.
In his view, analysts are some way behind what is happening on the ground to company prospects, which often accelerate rapidly. One example is Hero Honda, which is now selling half a million motorcycles a month. Only five years ago, it would sell this amount each year.
Second, the introduction of biometric ID cards entitling people to receive benefits should bring about big savings as the Indian authorities can pinpoint areas of need and avoid wasting money. The government realises it needs to do more to close the gap between rich and poor and they are increasing rural wages from 30 to 40 rupees a day to 100 rupees.
This extra money is creating demand for discretionary items rather than food, increasing the sales of various local businesses. Unlike China, the India story is not solely about the urban areas but the rural areas too. New railway lines and roads mean these people can more easily travel around to spend their money.
There is a growing sense of entitlement in India. People are demanding more and politicians are providing it. However, the government realises it cannot do it all themselves. It is the private sector that is filling the gaps.
Virtually all new highways are built by the private sector, as was the new international airport in Delhi, the thirdbiggest in the world and constructed in only 33 months. Avinash believes the potential for growth for the next 15 years is better than the last 15 and, with a new generation of entrepreneurs coming through who are more motivated than ever, the prospects are bright.
Avinash believes his fund is positioned fairly cautiously relative to the market as a whole. His strategy is to try to capture as much of the upside in the market as possible but at a lower risk than other funds.
He seldom trades the portfolio, tending to buy his strongest conviction ideas for the long term. The focus is firmly on good-quality businesses with strong management and strong earnings’ growth.
If you are looking for a longterm growth story, India fits the bill and Jupiter India is an ideal way to gain exposure.
Mark Dampier is head of research at Hargreaves Lansdown