Mehta has built up a massive overweight position in the country, more than double the weighting in his MSCI AC Asia ex Japan benchmark, and has been reducing the size of his holdings in China.
He says that the credit boom in the country has come to an end, and economic conditions are excellent, but the slow nature of Indian bureaucracy means this has not yet been reflected in the figures.
Mehta said: “I think India has gone back to the 1990s. At the time it had scarcity of capital, it was very difficult to get credit, then in the 2000s there was a bull market around the world and credit in India grew tremendously.”
“The cost of money fell sharply and many people borrowed who perhaps should not have been able to. This meant that in the noughties we saw investment in India misallocated.”
“We have seen this change but the nature of India means that this will take some time to come through to businesses. Opening a cement plant in India takes up to five years, but in China it takes 14 to 16 months,” he said.
According to FE Analytics, Mehta’s £27.9m Irish domiciled fund has 17.7 per cent of its total assets in India. This is over double the amount of its MSCI AC Asia ex Japan benchmark which has 8.7 per cent in the country.
Mehta acknowledges that the complicated infrastructure issues that surround India have put off investors in the past, but says that steps have been taking to improve the logistical structure of the country and capital growth will come hand in hand with these changes.
“There is a huge freight corridor being built that will come into service in 2017 and will change logistics in the country.”
“The new corridor will lead to a 30 to 35 per cent drop in the cost of logistics in India, and returns on capital will rise higher.”
Since Mehta began running the fund in September 2011, JOHCM Asia ex Japan has outperformed its sector and benchmark.
Performance of fund versus sector and benchmark since Sept 2011
Source FE: Analytics
The fund has returned 22.30 per cent while it’s sector has returned 15.58 per cent and its benchmark has returned 15.18 per cent.
JOHCM Asia ex Japan has a total expense ratio (TER) of 2.28 per cent and a minimum investment £1,000.
Sharat Shroff, head of the Matthews Asia India fund, thinks that the best way to gain exposure to the Indian markets is from domestic companies; however, he believes investors will have to contend with a lot of volatility.
He said: “When you invest in western companies they do give you some exposure, but if you really want to tap into the Indian market then domestic companies are the best way in my opinion.”
“You could go the investment approach of subsidiaries of global multi-national corporates and these are a good way of participating in the market.”
“However, these are often trading on a significant premium so the cost of investing in them is high. So we try a find domestic companies that maybe are not performing so well now, but will pick up over the next five years.”
Shroff’s co-manager, Sunil Asnani, believes there are more opportunities outside the main cities in India.
“Entrepreneurs are not sitting in Mumbai, they are in smaller towns, and that is where the growth is happening,” he said.
“India started from such a low base, and so almost every sector is growing. You can find companies which can take advantage of that growth in a profitable way.”
He admits there are concerns around the stability of the economy, but says if there is an infrastructure breakdown, some companies will be able to gain a market edge.
Asnani continued: “I’m not trying to discount the challenges in India, but you don’t have to wait to invest, there are opportunities now.”
Jai Jacob, manager of the Dublin-domiciled $20m Lazard Emerging Markets Allocation fund, remains wary of India, however. He says overarching political and economic concerns are too severe for him to take an overweight position, and stresses the importance to focus on company specifics in India.
He says it will take time to assess the results of the government’s recent liberalisation reforms, which many are pointing to as a big benefit to Indian investment.
“The ability to implement the set of reforms that have been proposed will be critical,” he said.
“The reforms seem market friendly, but will they be able to put these measures in place while retaining popular support? There are certain companies we like in India, but it really does come down to the micro.”