Indian companies with strong domestic-facing business models can help the country move out of the shadow of doubt caused by its grouping in the so-called ‘fragile five’.
That is the view of Philippe Langham, head of emerging markets for Canadian investment firm RBC Global Asset Management.
Speaking to Citywire Global in the firm’s London office, Langham said the ‘fragile five’ tag – which was applied to Brazil, India, Indonesia, Turkey and South Africa – has caused generalists to continue to stay away from the market.
In particular, he said, India has received a harsh array of criticism due to the country’s currency falling very steeply against the US dollar over the course of 2013.
‘These countries in particular have been very weak and have been sold down aggressively over the last year. This is to the point where they are now starting to look undervalued and that is combined with an improvement in current account deficits.’
‘This is particularly true in India and Indonesia, where we think these two markets have the potential to improve. This is while probably continuing to avoid those most dependent on foreign flows, which are Turkey and Brazil.’
Langham, who runs the $1.5 billion RBC Emerging Markets Equity fund, which was launched in Ucits format at the start of 2013, has taken an 8.9% stake in India, with a strong emphasis on its export-led companies.
This, he said, is designed to capitalise on the opportunities created by the weakening of the currency and growing expertise in niche market and service areas.
‘If you look at the export sector in India, they are able to deliver IT and pharmaceutical services into markets beyond their domestic borders. These sectors have done extremely well because they actually benefited from the currency weakness when the rupee dropped sharply.’
‘This showed the ability to benefit during difficulties and we think they can perform well in the future, so we have added in some of these themes.’
Langham’s colleague Laurence Bensafi, who oversees the group’s Canada-domiciled Emerging Markets Dividends fund, said investors may be unaware of how far-reaching India’s pharmaceutical advances have come.
‘If you look at the US, Indian companies are going to be a beneficiary from the introduction of healthcare reform and I am not sure how many people are aware of that,’ she said.
‘The reforms mean there will be a drive towards cheaper drugs, on the generic side, which is where the Indian companies, especially on the export side, are performing very strongly.’
In the year to the end of February 2014, the RBC Funds (Lux) Emerging Markets Equity fund lost 3.61%. This compares to a fall of 5.67% by its Citywire benchmark, the MSCI EM (Emerging Markets) TR USD, over the same period in US dollar terms.