The Indian equity market has suffered a turbulent time over the past five years.
It has moved from a being a darling among the emerging markets to suffering a huge currency correction at the end of 2013.
This rollercoaster ride saw India branded a ‘nightmare’ market by some investors, although recent viewpoints have become more constructive.
Largely bolstered by the reform-led programme of newly-elected Prime Minister Narendra Modi, a number of equity managers are now reassessing their Indian exposure, particularly in the public sector.
While this may present outperformance in the future, how have these major market movements affected those in operation in the Indian equity sector over the past five years?
Over the five years to the end of October 2014, the MSCI India TR USD rose 75% in rupee terms, while the average manager in the 47-strong Indian equity sector retuned 88% over the same period in absolute terms.
However, there are two managers who have managed to stay ahead of the chasing pack and post consistent outperformance in each of the past five years regardless of market conditions. Let’s take a look at the leading lights in Indian equities over this timeframe.
Prashant Khemka, Goldman Sachs AM
Five year total return (October 2009-October 2014): 125.97%
Best year of outperformance vs. average manager: +9.31% in 2011/12
Citywire AA-rated manager Prashant Khemka has posted consistent outperformance on his $641 million Indian equity fund, which he runs on behalf of Goldman Sachs Asset Management. He is also CIO for emerging markets at the firm.
Khemka has focused on a more diverse exposure to the market in terms of cap weightings, with 19% of the fund exposed to small-cap stocks, while 20% is invested in so-called mid-cap names. This compares to 4.9% and 15% in the fund’s benchmark, respectively.
Similar diversification is evident in the fund’s sector exposures. Financials – a large composite of the index – makes up 22% of the fund, while IT (18.7%), industrials (12%) and materials (11%) are well-represented.
Speaking to Citywire Global in September, Khemka said he was among those eyeing opportunities in the public sector, with a view to adding state-owned companies as they become more efficient and competitive as Modi grants them greater autonomy.
David Gait, First State
Five year total return (October 2009-October 2014): 184.38%
Best year of outperformance vs. average manager: +13.25% in 2010/11
A second Citywire AA-rated manager with a strong track record in this difficult sector is First State’s emerging markets veteran David Gait. Gait is also the strongest performer in the sector on an absolute basis with a five-year total return which is over double the benchmark rise.
Gait runs three funds focused on the Indian equity market, all variants on the same strategy but in UK-domiciled, Dublin-domiciled and Singapore-domiciled formats. Looking at the current shape of the fund, Gait runs a relatively concentrated portfolio of 41 holdings.
Unlike Khemka, Gait has much larger exposure to the consumer sector, which makes up one-third of the fund’s exposure. This is made up of 23% on consumer staple stocks and 12% in consumer discretionary, financials accounts for 16%.
The nature of the fund means Gait can invest across the Indian subcontinent as a whole, rather than the Indian market exclusively. He currently has 92% of the fund exposure to India, while a very marginal investment is in Bangladesh and almost 7% is held in liquid instruments.