Australian-based Jaipur Asset Management recently launched the Jaipur India Growth Fund as an opportunity for sophisticated investors in Australia to invest in the world’s biggest democracy while using local expertise in India to minimise downside risk.
Aside from being the world’s most populous democracy with around 1.33 billion, it represents around 8 per cent of the MSCI Emerging Markets Index, against for instance 6.5 per cent for Brazil and 3.75 per cent for Russia.
India’s economy is notably decoupled from other markets because of its overwhelmingly domestic consumption.
The Economist [c1] calculates the country’s GDP growth at 7.3 per cent a year based on statistics current at the end of the third quarter of 2016, which includes 8.3 per cent for the third quarter alone.
That compares with China’s equivalent numbers of 6.7 and 7.4 per cent, making India then China number one and number two respectively in the world.
Investors are only now beginning to realise the massive benefits of the Modi government’s changes to India’s financial system, begun in 2014.
The demonetisation of large banknotes was controversial in its execution but unarguably successful in having added around $150 billion to the banking system.
Other moves include the introduction in late 2016 of GST, a serious crackdown on bloat in the notorious bureaucracy, a new infrastructure program and a scheme to finally provide 240 million Indians with access to the banking system.
The GST measure alone is expected to increase GDP by 1 per cent.
Why go with active managers in India?
Simple: the good ones significantly outperform passive managers.
Inevitably it’s hard to invest in India at arm’s length on a stock by stock basis, but recent statistics make it clear that ETFs and similar funds simply do not generate the performance that justify serious investment in the country.
The Jaipur India Growth Fund is a fund-of-funds based on three of the top five asset managers in India, being Birla Sun Life Asset Management, SBI Funds Management and Unit Trust of India. Between them the three have around $A75 billion under management.
The new Fund can point to the underlying track record of the three local managers selected as justification for choosing an active rather than a passive approach.
Not only does the fund target total returns exceeding the MSCI India Index by 200 basis points over the medium to long term, but its underlying assets have outperformed those benchmarks substantially over the last three and five years.
India has the biggest population of people under 30 in the world, and it has a dramatically increasing proportion of tertiary educated citizens. For instance it produces 1.5 million engineers every year, which is more than the USA and China together.
The government’s “Skill India” program plans to give vocational skills training to no less than 400 million people within the next five years.
Some 80 per cent of the country’s GDP is based on domestic consumption and 20 per cent (and growing) is made up of service industry exports such as IT, medicine and accountancy.
Its share market is wide and deep with almost 5000 companies listed, with far less domination by top stocks than in other markets. For instance whereas India’s top five stocks account for 73 per cent of the country’s total market capitalisation, the equivalent number in Singapore is 100 per cent and in China it is 85 per cent.
The World Bank estimates that within the next 15 years India is expected to have the third biggest economy in the world, by GDP, after the US and China. It currently sits fifth ahead of leading economies such as the UK.
The Australian domiciled Jaipur Asset Management will be responsible for the selection and monitoring of asset managers in India.
For further information on the Jaipur India Fund contact Brown Capital.
Written by Andrew Main. Long established and objectively minded financial journalist, Andrew Main has an eye for what counts for investors.
[c1]We’ve been quoting IMF data