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.
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.
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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.
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