IndiaOct 21 2016

Best in Class: Celebrating new beginnings

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Best in Class: Celebrating new beginnings

Diwali, the Hindu festival of lights, begins next week. It marks new beginnings, so it seems appropriate to highlight a hidden gem we’ve recently come across: Ashburton Indian Equity Opportunities.

It’s a minnow still, with just £82m assets under management, but its potential is enormous. It is run by a team of three people: Jonathan Schiessl, Simon Finch and Craig Farley, who observe and analyse the economy first and form a view as to which areas offer the best opportunities for growth, quality and value. They then undertake a bottom-up process looking for stocks in those sectors and focus on investing in well-managed companies that consider the interests of the minority shareholders.

The managers have little or no regard for the Indian stockmarket index, which is dominated by large companies, as they believe smaller stocks outside the index offer some of the strongest growth prospects. So it’s a true multi-cap fund. 

They have the courage of their conviction and the fund is concentrated in just 20-30 names, but the managers have still achieved good diversification across different industries. And, while the fund is primarily aligned to the huge potential that the domestic India story offers, the managers also invest in Indian companies with non-India exposure to provide a natural hedge against the currency.

India is my favourite emerging market and has been for some time. Amid all the doom and gloom of global growth (or lack of), it has been a ray of sunshine and is one of the fastest expanding economies in the world, with annual growth expected to be just over 7 per cent this year. 

Inflation has been an issue, but the falling oil price (India is the fourth-largest user and importer) and the cast-iron will of the previous governor of the Reserve Bank of India have brought it under control at 5 per cent – nicely within the 2-6 per cent target. It is expected to keep falling in the coming months following a good monsoon that brought down food prices. As a result, interest rates were cut to 6.25 per cent earlier this month. 

The demographics are great with a young, increasingly educated population and growing middle class. It is also an entrepreneurial society, so the opportunities for business and growth are diverse. 

The latter has been stifled in the past by a having a messy democracy. However Narendra Modi , the pro-business prime minister, has done a lot to address this and, over the summer, there was a historic breakthrough with what is perhaps the country’s single most important structural reform in 25 years: the much-anticipated Goods and Services Tax Constitutional Amendment Bill. The bill will replace a plethora of central, state, inter-state and local taxes with a single, uniform tax for good and services, and was passed unanimously in the Indian parliament. It comes into force next year and will effectively make India one unified common market. 

As new beginnings go, it’s not a bad one. Without having to spend an extraordinary amount of time complying with unnecessarily complicated tax laws, business owners will now, in theory, be freed up to do what they want to do: conduct business with ease, certainty and efficiency; increase productivity; and give India’s companies a competitive boost on the global stage.

Darius McDermott is managing director of FundCalibre