Opinions5 Mins Read
All You Wanted to ASK About Investing In India
By now, we all know that the COVID crisis will have a severe, across-the-board impact on global economies. However, there is now a growing consensus that the APAC will also be one of the first regions to bounce back from this shock.
The resilience of the region is evident by its annual average growth rates throughout the Global Financial Crisis (4.7%) and the Asian Financial Crisis (1.3%). The current downward revisions are substantial, with the largest revisions for Australia and New Zealand (-9ppt), Japan (-5.9ppt), and China(-4.8ppt); but the recovery is expected to be at par, too.
According to the IMF, Asia’s post-COVID growth in 2021 is expected to rise to 7.6 percent.
Asian countries were exposed to the virus before others, and have already seen positive outcomes of their containment efforts. Moreover, their strong performance during previous crises lets us believe that now is the best time for investors to diversify into this region.
To help you make the most of this opportunity, we have added new funds to our platform to increase your exposure to the emerging markets in Asia. With ASK, you have an opportunity to invest in entrepreneurial and well-managed listed companies with solid fundamentals.
The ASK Group is a renowned financial services group and a leading industry player in wealth and investment management, catering to some of the most affluent families in India. Started in 1983, the company is known for its strong research-based investment management, asset management, private equity, wealth advisory, and multi-family office businesses.
Following is a tete-a-tete with Gaurav Sharma, Portfolio Manager with ASK, where he tells us about why emerging markets; and India in particular, makes for a good investment opportunity in today’s times.
1. How important is India within the global equity allocation and in the context of emerging or developing markets?
We believe that India should form an important part of an equity investor allocation, be it global or within the context of emerging markets. Before the COVID-19 pandemic hit global growth, India was one of the fastest-growing major economies in the world. India has, and as repeated often, one of the largest and youngest populations with a growing aspirational middle class which provides fertile ground to benefit from domestic consumption growth over several years and beyond. Consumption is not just about everyday products but includes value-added services such as financial services and insurance where the penetration levels are quite low compared to global standards. For example, penetration levels for general insurance in India are ~1% compared to ~1.8% for Asia and ~2.8% global average. This is but one data point regarding the potential of India. Infrastructure is another key area of growth over the coming years.
The current COVID-19 crisis has obviously slowed things down in the near term and new consumption patterns will emerge. But the long-term trend remains intact. India is one of the few economies that offer long-term growth potential and the opportunity to invest in some of the best and fastest-growing businesses in the world. Thus, India should certainly be part of any global or emerging market equity allocation focused on long-term returns.
2. Do you think RBI will be able to do more than other Central Banks with the stimulus and spending and consumption patterns in India will outpace that of China?
The RBI has done the heavy lifting in the initial response to the COVID-19 crisis in India. RBI’s immediate focus was on eliminating the systemic risk to the financial system in the wake of certain failures, including a major bank and some debt funds, and they seem to have achieved that. Banks in India have either raised or are planning to raise equity. The RBI has created enough liquidity to ensure that Non-Banking Financial Companies (NBFCs) receive the required funding with the cost of funds reducing over the past couple of months. This has enabled the Government to focus on ensuring that people at the bottom of the pyramid survive the current crisis.
At the same time, RBI has built strong forex reserves (in excess of USD500 Bn) to safeguard against future global uncertainties. While a lot is uncertain at the current point in time, we believe that the RBI and the government have sufficient resources to respond to the evolving economic situation.
3. Many global investors, particularly the global Indian community, have portfolios in India through mutual funds, and last year many funds underperformed the broad index. How does ASK compare with its peer group?
ASK has always adopted a very disciplined approach towards managing portfolios and meeting the investment objective of capital preservation and capital appreciation over a period of time. We are index agnostic in choosing our investments, being guided by our filtering process, and in-depth research in selecting investments for our concentrated strategies. This is what has enabled us to consistently generate alpha over the last several years. ASK has always been at the top of the rankings for off-shore India funds over the medium to long-term. Specifically, for the year 2019, the Singapore domiciled fund returned 10.39% for retail share class and 11.22% for institutional share class in USD terms, net of fees. During the same period, BSE500 was up 5.43%, and the MSCI India Index was up 6.12% in USD terms (Source: Bloomberg).
4. Moody’s, S&P, and Fitch recently downgraded India’s sovereign rating. We have also had news of lower FII flowing into the country. BNP Paribas recently announced that it would shut down its wealth management arm in India. Do you see a cause for concern for investors looking to invest in the country?
There is no denying the fact that there are near term challenges facing India, as is the case for all the economies in the world. The effect of COVID-19 pandemic on the economies is unprecedented and the recovery from it is still uncertain. Within that context, the downgrade of India’s ratings by the rating agencies or some outflow of FII funds is to be expected. We believe that with benign commodity prices, especially oil, and the lower import of consumer goods, these factors should help INR stability. FII outflows for the current calendar year are ~USD2.7 Bn. However, the month of March alone the outflows were ~USD8.3 Bn. So, the last couple of months have witnessed FII funds flowing back into the Indian markets. We should also note that for the calendar year 2019, FII inflows in Indian equities were ~USD14 Bn. One should also not forget the kind of investments that Reliance Industries has attracted in the past couple of months providing further evidence that global investors and firms are utilizing this moment in time to access the Indian Opportunity.
5. Many countries that have reopened their economies are currently facing the threat of a second wave of the virus. India, too, has seen a huge spike in numbers. How do you see the economic impact of the second wave of Covid-19 and any ensuing lockdowns affecting the markets?
Governments across the world have witnessed the severe economic impact of complete lockdowns. Hence it is unlikely that we might have the same level of the lockdown of economies as experienced during phase 1 when the world was dealing with very little knowledge of the COVID-19 virus. Any new lockdowns in India are likely to be localized to areas reporting a spike in infection rates. We have also seen the people and businesses evolve and adapt. Hence while such news might cause some volatility in the markets, it is unlikely to cause the economy to shut down as in the previous phase.
6. Do you see any changes in the consumption behavior of an investor interested in India due to this pandemic? Does it affect the decisions you are taking in your portfolio?
If you are talking about the change in the consumption pattern of domestic consumers in India, we are likely to witness some changes in the manner of consumption. With jobs and incomes affected in the current year due to the economic slowdown, we are certainly wary of discretionary spending. We are also likely to witness a change in the distribution of products with consumption shifting to more online channels, accelerating a trend that was underway. We are constantly evaluating the environment and have invested in companies that can benefit from demand irrespective of the channel from which it comes.
With regards to investors investing in India, it is but natural to be scared by the kind of market volatility we have witnessed over the last few months. But it is our belief that these are the times that provide opportunities for some great investments. As long as an investor is able to stomach some near-term volatility, we believe there are some great returns to be made for those seeking long term outperformance and upside. At ASK, we continue to stick to our investment discipline and seek to identify great businesses that can grow in a sustained and predictable manner.
About Gaurav Sharma
Gaurav joined ASK Capital Management in 2017 as the Portfolio Manager for the ASK India Opportunities Fund 1, the flagship equities offshore fund of the ASK Group.
Gaurav has over 15 years of experience in the finance industry as an investment analyst and portfolio manager. Based out of Singapore, he has covered Asia Pacific ex-Japan equities across various sectors at both J O Hambro Capital Management and Silver Metis Capital Management. He started his career with Karvy Stock Broking in India as an equities derivatives analyst.
Gaurav has a Bachelor in Electrical Engineering from South Gujarat University and an MBA in Finance and Strategy from Owen School of Business at Vanderbilt University, USA. He is also a CFA charter holder.
The materials and data contained herein are for information only and shall in no event be construed as an offer to purchase or sell or the solicitation of an offer to purchase or sell any securities in any jurisdiction. Kristal Advisors does not make any representation, undertaking, warranty or guarantee as to the update, completeness, correctness, reliability or accuracy of the materials and data herein. All opinions, forecasts or estimation expressed herein are subject to change without prior notice. Kristal Advisors and its affiliates accept no liability or responsibility whatsoever for any direct or consequential loss and/or damages arising out of or in relation to any use of opinions, forecasts, materials and data contained herein or otherwise arising in connection therewith.
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