Gaurav Narain, co-head of equities at Ocean Dials Asset Management, has started buying more “high growth” companies as he believes the macroeconomic circumstances in India are favourable.
Narain runs the £119m India Capital Growth fund, investing primarily in small and mid-cap stocks.
The portfolio is centred around “long-term compounding stories”, according to Narain, investing in businesses that can sustain a 15-20% earnings growth. Companies such as, PI Industries, an agrochemical company is an example of these “consistent compounders” within the portfolio, Narain said.
“When I entered the company nine years back it was a $300m market cap company. Since then it has given me over 13 fold returns.”
But now, Narain is turning his fund in a new direction, looking towards high-growth companies in an attempt to capitalise on the post-pandemic picture in India.
Growth has become synonymous with lagging returns the past few months in markets as the poster-index for this style, the US S&P, has nosedived on the back of rising inflation and interest rates.
But this performance does not reflect the outlook for growth globally, as Narain was optimistic when it came to India.
The manager said he had already invested in several Indian growth opportunities, such as Dixon and Vedant Fashions.
Narain described Dixon as “the Foxconn of India”, making televisions and washing machines for Panasonic and mobile phones for the likes of Motorola and Nokia, the latter of which relies on the company for 100% of its demand in India. Its growth is “almost 200-300% a year because of the way they are scaling up”, the manager said.
Meanwhile, Vedant is the “only national brand in the country” for ethnic wear, a fast growing industry for mass-manufacturing over traditional handcrafted clothing items.
Another company the manager views as “radically different” is £4bn Sona BLW, manufacturers of auto-ancillary supplies for companies like Tesla, which are then used in factories in China.
Narain added: “It is very rare that there are high tech items being exported from India to China”.
Food in the headlines: What’s next for investors?
Macroeconomics
Naurin also explained macroeconomic factors have also perfectly set India up for a period of strong growth, and said he expects earnings growth to sit at about 40% this year and 27% in 2023.
“India is the fastest growing large economy” with labour costs at a third of China’s, he said, while “almost half the population is below 25 years old,” creating a strong labour market and expanding consumer base.
He noted that the country had “no legacy systems” to build around, allowing India to “leapfrog” straight into innovative technology and industries.
Large investments in the infrastructure of the country, efforts towards financial inclusion and a push to bring manufacturing into the country, especially for products sold in India, are all aiding economic growth. For example, Narain noted that 75% of iPhones sold in India are now locally produced.
The manager added that India “had the most stringent lockdown”, leaving companies with a large amount of room to grow as the country has re-opened.
He stated that “the base is so low that for most companies compared to the previous financial year when you’d lost almost a quarter of sales”.
https://www.investmentweek.co.uk/news-analysis/4049237/narain-india-set-for-massive-growth-potential
