New trust pins hope on Indian population

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The Independent Online
OUT-OF-CONTROL population growth is normally seen as the scourge of the Third World, but UK fund managers launching trusts in India are pinning their investment philosophy on an economic miracle to be fuelled by demand from the country's huge population.

The first investment trust buying shares in Indian companies is to be offered to the public from 27 April. The fund, from Fleming, will invest in a wide spread of equities and equity-related securities.

It will be managed from Hong Kong by Jonathan Boyer, who also manages the Jardine Fleming India Unit Trust, which has risen over 200 per cent in one year. That is not available for UK investors.

Mr Boyer will be managing the new investment trust in the same way, individually choosing companies from the 1,300 that are traded on India's 23 stock exchanges.

India has 7,000 quoted companies in total, more than the whole of South-east Asia put together, but the majority are small, illiquid stocks. The UK has 1,900 quoted shares.

Mr Boyer will head a team of 68 that will be looking for companies offering the best value.

India first opened its doors to foreign investment in 1992, but its debut was marred by the Bombay stock market scandal, when pounds 850m was illegally diverted from banks into shares, according to allegations in a report into the debacle by Indian MPs, released before Christmas.

A bombing campaign against the stock exchanges two years ago also added to India's problems in convincing foreign investors that it was a safe place to invest.

However, Fleming believes that the long-term economic outlook for India is good. Growth is predicted to be about 5 per cent this year, compared with expected growth of between 2 and 3 per cent in Europe. The predicted growth rate is in line with other emerging markets, namely Latin America and the Far East. Inflation is about 9 per cent, while interest rates are 15 per cent.

Economic expansion will be helped by demand from a market of 870 million people. Of these, about 200 million are middle-class and have an increasing purchasing power.

The number of TVs per thousand population in India is 38, compared with 111 in China, 203 in South Korea and 526 in the UK.

The government, led by PV Narashima Rao, has embarked on a wide-ranging series of reforms in response to the financial collapse brought about by the break-up of the former Soviet Union and, therefore, the loss of its major trading partner. Mr Rao took over after the assassination of Rajiv Gandhi and began by dismantling the highly bureaucratic system.

Since then he has instigated reforms that include a vast privatisation programme, a reduction of government controls and the devaluation and partial conversion of the rupee.

The effect has been to improve the trade balance and increase foreign investment. An election in India is not due until May 1996.

Investors in Indian funds may be heartened by the fact that regulation in India has been considerably tightened up since the scandal of 1992. However, Nicholas Prowse, Fleming's director, said: 'The system of regulation is not equal to that of more developed countries.'

The method of stock market settlement is archaic - certificates are still carried around in tea chests on the back of bicycles.

According to Mr Prowse: 'One day's trading in the Jardine Fleming India Unit Trust can be measured in 32 tea chests of certificates.'

Investors in the Fleming fund will be buying into a market that is currently 20 per cent off the peak it reached earlier this year.

Edinburgh Fund Managers also invests in India through its investment and unit trusts. Steven Barton, investment manager, said: 'The trouble with India is that it looks quite expensive.'

Fleming is on 071-638 5858.

(Photograph omitted)