Investors optimism over India following Narendra Modi’s barnstorming election win is proving contagious, with some of the best-known emerging market equity managers upping their exposure to the country.
Goldman Sachs Asset Management’s Prashant Khemka and Hermes’ Gary Greenberg are betting on the outperformance of some Indian equity sectors which will be boosted by the pro-business stance of the new government or directly benefit from their intrinsic growth potential.
Khemka, who is CIO of EM equity at GSAM and Citywire AA-rated, has recently turned bullish on stocks which have suffered the most over the past five years.
Speaking to Citywire Global, he said that some mid-cap businesses in the industrial, consumer discretionary, real estate and financial space will thrive in the future, driven by Modi's reforms.
‘The BJP’s victory is the biggest inflection point in Indian history since the independence from Britain,’ he said.
‘We want to be in the most troubled areas of the economy, those which have suffered the most in the past years, and spot the best mispriced opportunities. Modi is a strong executor and we fully share the excitement following his victory,’ he added.
Khemka, who manages the Goldman Sachs BRICs Portfolio, the Goldman Sachs Growth & EM Broad Equity and the Goldman Sachs India Equity funds, began increasing his exposure to these sectors at the start of the year.
The manager currently steers away from the telecommunication sector, believing it's high competitiveness doesn’t offer great opportunities from a valuation point of view.
Over the last three years, Khemka returned 22.49 percentage points more than the average peer in the EM countries equity - India sector.
The software revolution
Fellow EM star, Citywire AA-rated manager Gary Greenberg, has upped his exposure to the Indian software sector to capitalise on the cutting-edge technological developments these companies are producing, he said to Citywire Global.
Hermes' head of emerging markets bought 2% positions in Tech Mahindra and HCL Technology in April, ahead of the national elections.
‘Both are mid-sized companies moving towards automation and non-linearity. Cloud storage migration is a fantastic story. They also offer solid growth prospects at a really good value,’ he said.
Greenberg, who manages the Hermes Global Emerging Markets fund, also upped his exposure to state-owned utility company PowerGrid and forging firm Bharat Forge, as he believes both industries boast a significant growth potential.
Speaking about the future of the country, the manager said we will have to wait 18-24 months to see the impact of Modi’s reforms on the economy.
‘The market has been pretty indiscriminate in its buying. Over the next six months, it will become more discriminating. Modi has raised a lot of euphoria, but he will cause several protests as well, even within his party,’ he said.
Over the past year, Greenberg returned 5.08%, 7.45 percentage points more than the average manager in the equity – global EM sector.