Mark Dampier: Reliance fund opens up a new passage to India
Saturday 02 October 2010
Few investors would recognise the name Insynergy, but I'm sure it won't be long before it becomes well known. They are a relatively new fund management business offering UK retail investors access to experienced and talented fund managers, whose skills have previously only been available outside the UK or to institutions.
As the name suggests, this fund focuses on Indian equities. It is headed by Ashish Mehta of Reliance Asset Management, who has over 15 years' experience in this area. Those who know anything about Reliance will be aware it is one of the largest companies in India, covering a diverse range of activities, with financial services being just one element to the business.
The Indian growth story has been somewhat eclipsed by that of rival China. It is fair to say China's development is a number of years ahead, but I think India is probably the more interesting story for the next 25 years. A large part of this relates to population trends, which give it a demographic edge over China and most other Asian countries.
Of the Indian population, 65 per cent is aged under 35 and half of these under 25. Why is this is important? Because it is younger generations that tend to drive growth forward, especially when they are well educated. The Chinese, on the other hand, are projected to suffer a Western-style aging population over the coming decades, which may explain why they are in such in a rush to get things done.
India, like China, offers a long list of mind-boggling facts, which are even more impressive when compared with more mature economies such as the UK or America. India plans to spend $250bn over the next two years on infrastructure and $1.3 trillion over seven years. Huge investment has already been made into power generation with new plants coming on-stream far quicker than expected. India might have experienced some problems in building infrastructure for the Commonwealth Games, but it could still teach the UK some lessons in planning. The needs are pressing, though. Scarcely 50 per cent of the roads are paved and pre-planned power shut-offs are a daily occurrence in second- and third-tier cities. The rural population, meanwhile, typically receives only 8 to 10 hours of electricity a day.
India's infrastructure drive and burgeoning middle class are providing plenty of investment opportunities, and Reliance believe it is possible to find companies on very attractive valuations that can grow at 20 to 25 per cent each year, implying a doubling of their share prices every three years. However, they aren't blinded by potential and recognise that rapidly growing economies can become overheated.
They are therefore discerning about company valuations and will sell a share that reaches their estimation of fair value, and in this fund they have an additional ability to hedge the portfolio by shorting shares in companies they believe are overpriced. If you are sifting through the market looking for great businesses with good management, you will also come across poor business models, weak management and areas in decline, so this creates extra opportunities the Reliance team can exploit.
With a starting universe of 2,000 stocks, Reliance focus on 400, using intensive company meetings to drill down to a core of approximately 125 companies. Being the size they are, Reliance has an extensive network of business contacts and experts, which help them analyse whole supply chains as well as the main competitors of the companies they hold.
This is a new venture for Reliance, which is dipping its toe in the UK market for the first time. From what I have seen, Reliance's existing funds in India have done extremely well, and I have made a decision to dip my own toe in this fund via my wife's SIPP. The combination of Reliance and one of Asia's best growth stories was enough to tempt me. I shall monitor the fund carefully over the next few months and look to cover it again in six or seven months; time.
Mark Dampier is head of research at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more details about the funds included in this column, visit www.h-l.co.uk/independent
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