India's attraction to investors likely to stand the test of time

Dubai: For investors, beauty is in the numbers and with the MSCI Indian index soaring past 80 per cent on a year-to-date basis last week, beauty is in the eyes of a broad range of investors from the Indian domestic market, to NRIs, to all forms of external "India watchers".

According to Amit Shah, President of IIFL Inc (India Infoline's "New York-based" subsidiary), India's beauty is not just a temporary fascination: "Against the backdrop of deep global recession, Indian mutual funds have been increasing their assets under management, and have delivered dollar returns of 26 per cent per annum over the last 5 years".

For investors, then, India should not be a momentary attraction; returns of over 20 per cent per annum are a lasting beauty.

Of course, the usual disclaimer applies — "past performance is not a guide to future performance."

However, when it comes to India and China, every analyst points the way to sustainable growth, with the general feeling that with India being somewhere around ten to 15 years behind the Chinese growth curve, and with a highly motivated, young, educated population to play with, India is getting as close as you can get to a "sure thing" in future equity market growth.

"Buy now while stocks last" seems to be the message emanating from many a fund manager. Shah puts more substance on this feeling with the observation that two areas demonstrate the Indian opportunity better than most: the need to develop infrastructure, and the stage of development of the Indian financial system.

Rapid urbanisation

"Infrastructure is India's traditional bottleneck," says Shah. The implication being that the need to build roads, railways, shipping and airports will mirror China's rapid urbanisation and this in itself will mean opportunity for well managed construction firms, logistics firms and all that sail within the need to build and develop infrastructure.

In respect of banking, Shah points out that if you added up the total market capitalisation of all of India's private and public banks, they would not exceed the market capitalisation value of Industrial and Commercial Bank of China (ICBC).

In short, all India really needs to do is track China's recent history. All investors have to do is invest in India. Interestingly for investors looking to diversify into the India-China play, Shah points to IIFL's "InCh" theme, a play on the India/China story; an InCh out of the Bric risk.

For many investors, the Indian opportunity is hardly a revelation. What makes IIFL reasonably unique is the fact that they use onshore Indian Fund Managers within an international Fund platform.

The significance is explained by Shah: "Comparing domestic India mutual funds with popular India-dedicated offshore funds (listed on foreign stock exchanges), not only are the returns of the domestic mutual funds consistently higher than those of offshore India-dedicated funds, the domestic mutual funds have exhibited much lower volatility than the offshore India-dedicated funds.

"Over most time periods under consideration, an international investor earned a higher dollar return and experienced lower volatility by investing directly in domestic mutual funds. Thus, it can be safely said that in US dollar terms, the domestic mutual funds comprehensively outperform the offshore India funds, both in higher returns and lower volatility."

For Gulf News readers this is a significant issue. Shah claims that in comparing offshore domiciled funds against onshore domiciled funds the return comparisons on a like-for-like comparison can be somewhere near to 10 to 20 per cent per annum.

Shah recommends the new Resilient India Growth Fund (RIGF), which is an Indian-dedicated, long only, fund-of-Indian-mutual-funds concept. According to Shah it was set up to "participate in the core India growth story by allocating investments to domestic Indian mutual funds.

RIGF seeks to achieve a consistent outperformance to the S&P CNX Defty (dollarised Nifty) by directly investing in a portfolio of Indian mutual fund schemes".

Speaking on the launch of the Resilient India Growth Fund, Shah added: "To put the outperformance of the domestic Indian mutual funds in perspective, consider this: $100 [Dh367] invested on January 1, 2004 in a basket of diversified Indian mutual funds would have become $409 by November 30, 2009, as compared to $257 if invested in the Defty or $233 if invested in a basket of diversified offshore India-dedicated funds. "

The writer is chairman of Mondial Financial Partners International.