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A-rated manager: why India isn’t expensive

A-rated manager: why India isn’t expensive

Indian stocks are not overpriced and firms in the country are still able to produce better than expected earnings, according to Citywire A-rated Mike Sell.

Sell, who runs the Alquity SICAV- Alquity Indian Subcontinent fund, said investors had moved out of the country too soon on valuation fears.

‘Many investors are concerned that India has run too far too fast, and you have made very good returns there in the past year.

'We think that the growth potential is still not correctly priced in and we would expect to see earnings surprise over the coming quarters, which would exceed investors' expectations.

‘As long as you have the growth coming through that we expect, then India is not in our view expensive,’ Sell told Citywire Selector.

Sell said much of India’s future growth would come from companies targeting its domestic market, such as retail chain Vmart, which is a 5.5% allocation in his fund.

Vmart, Sell said, is well placed to benefit from the shift from the informal to the formal economy after the implementation of the Goods and Services Tax (GST). The informal economy accounts for around 93% of the retail sector.

‘Vmart's share price has more than doubled this year, but they are in 155 cities and they can be in 5000 locations. The potential of this, not just over the next two years, but over the next five years or even ten years, isn’t built into share prices,’ Sell said.

Political outlook

Commenting on the outlook for the country, Sell said India remained resilient after the chaos caused by demonetisation. This saw all 500 rupee ($7.67) and 1000 rupee ($15.34) notes withdrawn from circulation to tackle corruption.

Sell added that politics was the next event investors should watch closely, even while President Narendra Modi remained in favour.

‘Modi has been incredibly successful in implementing reform which hasn’t been popular with everyone at the time, obviously the disruption from demonetisation is a case in point. But he is actually more popular now than he was before that, which is a very rare thing anywhere in the world,' Sell said. 

‘His party controls more states than they did before. He is on track to being in government for the foreseeable future, but we have to watch for whether that changes.

'Politics can be very fickle, as we know in the UK, so we have to watch for big state elections such as Gujarat and in the run up to national elections in a couple of years' time.’

Over three years to the end of September 2017 the Alquity SICAV- Alquity Indian Subcontinent fund returned 51.31% in Indian rupee terms.

This compares to a rise of 38.96% by its Citywire-assigned benchmark, the S&P BSE 500 TR, over the same time frame.

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