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AAA-rated manager: where to find India's growth companies

AAA-rated manager: where to find India's growth companies

Investors in India should look for smaller companies recently listed on the stock exchange to tap into long-term stories which can grow their earnings very quickly.

That is according to Citywire AAA-rated Vipul Mehta, who manages the $143.6 million Nomura Funds Ireland-India Equity fund.

At a round table event, Mehta said there's an increasing number of companies seeded by private equity companies which are listed on the stock exchange.

He highlighted retail chain Avenue Supermarts as an example of a company which had grown its earnings significantly since it had been listed. He has 14.82% allocated to the consumer staples sector and has a small holding in the firm.

'Our most recent success was a retail company which got listed. It is not in the benchmark but this is a company that got its initial public offering at about 30 times forward P/E.

'Six months into its listing good things have happened in the company and there have been some good announcements.

'The introduction of the Goods and Services Tax was a good phenomenon for the company, but it quotes at about 70-80 times P/E, which means by share valuations we have doubled our money in the last six months,' Mehta said.

He also highlighted Endurance Technologies, which makes components for a wide range electrical good and parts for motorcycles.

‘It is a supplier to two wheelers, which is growing with the two wheeler industry and also rapidly increasing its market share in the two wheeler industry,' Mehta said.

Demonetisation

Mehta said domestic investor interest in India had rocketed, which was due to the Indian government’s demonetisation efforts. This saw all 500 rupee ($7.70) and 1000 rupee ($15.40) notes were withdrawn from circulation to tackle corruption.

'Domestic investor interest has been absolutely massive. One of the driving factors was the demonetisation process because money came back into the system.

'The government clamping down on corruption has taken away property and gold as avenues for investment. Financial instruments remain the only avenue for investment, while investor interest in financial instruments is huge.

'August was the month of highest ever inflows in domestic mutual years, while the last three financial years there has been over $10 billion of inflows in equity markets.'

Over three years to the end of August 2017, the Nomura Funds Ireland-India Equity fund returned 77.09% in Indian rupee terms. This compares to a rise of 22.97% by its Citywire-assigned benchmark, the MSCI India TR USD, over the same time frame.

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