Lower interest rates and inflation combined with a quickly shrinking fiscal deficit mean now is a great time to buy into the cheap Indian market, according to Jupiter’s Avinash Vazirani (pictured)
Investors will be all too aware that India has been difficult to call in recent years. According to FE Analytics
, the MSCI India index has made just 16.31 per cent over the last half-decade and has lost money over three years.
Vazirani, manager of the £257m Jupiter India
fund, admits that the Indian market is one that is "absolutely affected" by macro noise, but thinks historically cheap valuations that are rising across the board bode well for long-term investors.
"I think it is a pretty good time to invest because the people who have wanted to sell have sold," he explained.
"Inflation is coming down and interest rates are coming down, plus they are looking to cut rates by a further 25 basis points."
"Higher inflation was one of the biggest headwinds in the region, but that is certainly becoming a tailwind now."
"Valuations are also on your side as they are below the 10-year average, meaning India is one of the cheapest markets right now."
"One issue that has really spooked investors in the past was the fiscal deficit, which the current finance minister has effectively broken the back of. It has come down now as a percentage of GDP."
"You just need to cut out the noise and focus on the fundamentals. People get nervous in India when markets fall – like we have seen recently – but it has still been a pretty good long-term market."
Even though the Indian market has had a tough three years or so, it is still one of the best performers over the last decade.
According to FE data, MSCI India is up 482.75 per cent over this time, beating the MSCI World index by 334.1 percentage points.
The only two funds with a track record of at least 10 years – JPM India
and HSBC GIF Indian Equity
– have delivered more than 500 per cent over the period.
A recent FE Trustnet
study revealed that often the most inconsistent funds top the performance tables over the long-term
Vazirani has managed the four crown-rated Jupiter India fund since its launch in February 2008. Over that time it has returned 37.38 per cent while its benchmark – MSCI India – has returned 7.13 per cent.
Performance of fund vs index since Feb 2008
Source: FE Analytics
The fund has also been significantly more stable than the index over this period. FE data shows it has an annualised volatility of 28.32 per cent over five years, compared with 33.54 per cent from the index.
Only First State Indian Subcontinent
and Aberdeen Global Indian Equity
have returned more over this period, although the former is now closed to new investors.
Vazirani says this success comes from investing towards the lower end of the Indian market cap spectrum.
"In my own view, small and mid caps are the best way to access the Indian markets," he explained.
"They are currently a lot cheaper than they should be."
"Six per cent economic growth last year is not bad, though people might get pessimistic."
The portfolio consists of 75 holdings and its largest sector weightings are to the consumer and financial sectors, which the manager says complements his optimistic long-term outlook
"The themes we use throughout the portfolio have stayed the same – consumers and financials," he continued.
"I don’t think the Indian consumption story has been fully understood by the analyst community, as two-thirds of India’s GDP comes from domestic consumption."
"Also, the direct benefit transfer (DBT) has not really been understood, which I think can be a big game changer."
The DBT scheme is a government plan to issue all 1.2 billion citizens of India with biometric identification cards so they can open bank accounts.
Vazirani believes this will transform the Indian banking system and create a surge in domestic consumption.
Five of the manager’s top-10 holdings in the fund have been there since launch. One of those is the drinks company United Spirit, which makes up 7.74 per cent of the portfolio.
"One of the best consumer stocks we hold is United Spirit," Vazirani continued. "Diageo recently agreed to buy United Spirit and we can see multiple triggers for increased profits over the next few years."
Financials make up 31.33 per cent of the fund and the manager is confident the sector will do well over the next few years because of the simplicity of its business model.
He commented: "Indian banks are cheap and growing quite well. Like with any economy, the proxy is, without finance you cannot grow."
"Indian banks are quite good because they are simple, they just take deposits and give out loans – they don’t really use derivatives or other such measures."
"Their balance sheets are easy to understand and I think concerns over non-performing loans are overly pessimistic," he added.
Jupiter India requires a minimum investment of £500 and has a total expense ratio (TER) of 1.88 per cent. This makes it the cheapest of 14 India funds in the IMA universe.