Indian Opportunities, a Bermuda-based company that invests through an Indian unit trust, has seen its net asset value grow by 54 per cent since August, outperforming the 50 per cent rise in the Bombay Stock Exchange index.
Some investment analysts are concerned that the Indian stock market has become overheated because of enthusiasm about the impact of economic reform in India.
However, Tristan Clube, of Martin Currie, said Indian Opportunities invested the bulk of its money in the more modestly priced stocks outside the Bombay index, with nearly half of it in small and medium-sized companies.
An analysis by Chescor, the small merchant bank that devised the original idea for the fund, suggests smaller companies offer much better value to investors. While India's leading six companies are priced at 40-50 times prospective earnings, the bottom 900 of the top 1,000 stocks trade on a multiple of 10-15 times.
India has well-established stock markets with about 7,000 quoted companies and about 15 million shareholders. But it suffers from an antiquated settlement system that can cause lengthy delays.
Mark Shirley, of Credit Lyonnais Securities, broker to Indian Opportunities, expects most of the new money to come from US institutions, which have been the most active buyers of the stock since the fund's launch.
Martin Currie manages the fund in conjunction with Indbank, the fund management arm of one of India's largest 10 banks. Martin Currie Chescor and Indbank share an annual management fee of 1.8 per cent of funds.
The offer for the new convertible preference shares will run until about the end of the month.Reuse content