Advertisement

Three ways to share in India’s success story

Cash is increasingly finding its way into Indian equities. Professional investor David Cornell tips three stocks with which to cash in.

Each week, a professional investor tells us where he'd put his money. This week: David Cornell of the India Capital Growth Fund selects three promising growth plays.

Investors should always scan the whole horizon for investment opportunities. They certainly should not miss India, which is the world's sixth-largest economy with a population of 1.3 billion, second only to China. The economy is growing at around 7% a year (the UK is managing 1.8%) and the Indian stockmarket boasts more than 5,000 listed companies compared with the 2,600 in the UK.

Advertisement - Article continues below

That's not all. India's reformist prime minister, Narendra Modi, has grasped nettles his predecessors merely tiptoed around. Since his 2014 election victory he has focused his energy on weeding out corruption and shrinking the shadow or black economy. Companies and individuals are now paying their fair share of tax, while Modi is also using technology to improve the efficiency of the economy.

Advertisement
Advertisement - Article continues below

This is forcing cash into the banking system, which should over time lower the cost of capital for companies and make it easier for individuals to borrow. Wealth that was previously held in cash is finding its way into savings products, particularly Indian equities.

Buying Indian shares directly is difficult for UK investors, due to regulatory hurdles and a highly bureaucratic process. Buying an Indian equities fund is easier, particularly an actively managed investment trust, which allows the manager to buy long-term holdings without fear of having to sell in a hurry to fund redemptions. The Indian small- and mid-cap sector is a fertile hunting ground for growth and there is a broad range of investable sectors. However, make sure the manager you choose has people on the ground in India who understand the local market.

Industry-leading margins

Kajaria Ceramics (Mumbai: KJC) makes ceramic and vitrified tiles in a market that has grown 15%-16% a year over the last five years. But penetration is still low and demand should flourish as consumer aspirations rise and commercial development increases, and also as a result of Indian government initiatives on railway modernisation and the "Clean India" campaign. Kajaria has industry-leading profit margins due to a low proportion of imports, high sales to retail customers, and a superior product mix. We anticipate further shifts up the value chain, leading to stronger profits.

Solid long-term prospects

Dewan Housing Finance (Mumbai: DEWH) is India's third-largest private-sector housing finance company. It operates in more than 350 locations across the nation, specialising in low- and middle-income borrowers. The long-term prospects for mortgage lending in India are good due to low penetration of housing loans and the falling cost of capital. The low-income segment enjoys little competition, as establishing a network is time consuming.

Major breakthrough

BLS International (Mumbai: BLSIN)provides visa and passport outsourcing services in India as well as globally. It works with 29 client governments in 58 countries for outsourced visa and passport verification. The major breakthrough came in 2016, when the firm won the global contract from the Spanish government for visa processing for the next five years.

Advertisement
Advertisement

Recommended

Bullish investors return to emerging markets
Stockmarkets

Bullish investors return to emerging markets

The ink had barely dried on the US-China trade deal before the bulls began pouring into emerging markets.
27 Jan 2020
Share tips of the week
Share tips

Share tips of the week

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
17 Jan 2020
Share tips: eight stocks that should deliver robust returns
Share tips

Share tips: eight stocks that should deliver robust returns

Ryan Ermey of US publication Kiplinger’s Personal Finance chooses his favourite stocks for the next decade, which should be able to grow for years.
28 Dec 2019
Beware the hidden risks when investing in emerging markets
Investment strategy

Beware the hidden risks when investing in emerging markets

Emerging markets look cheap compared with developed countries, but earnings may be less trustworthy.
23 Dec 2019

Most Popular

Don’t despair on dividends – these companies could be set to bring them back
Income investing

Don’t despair on dividends – these companies could be set to bring them back

The value of dividends paid out by UK stocks has plummeted this year as companies “rebase” their payment policies. But things could soon start to look…
6 Aug 2020
Platinum: the precious metal that looks set to play catch-up with silver and gold
Silver and other precious metals

Platinum: the precious metal that looks set to play catch-up with silver and gold

Gold and silver continue to soar, but there's still time to get in. And there's another precious metal that looks set to go on a bull run too, says Jo…
7 Aug 2020
Eagle Lightweight GT: the reincarnation of the E-type Jag
Toys and gadgets

Eagle Lightweight GT: the reincarnation of the E-type Jag

Jaguar’s classic E-type sports car has been reinvented for the modern age. The result – the Eagle Lightweight GT – is a thing of beauty.
7 Aug 2020