New Star is launching the New Star Indian Equity Fund to provide investors with access to the compelling investment potential of one of the world’s largest and fastest growing economies.
The fund is designed for investors seeking medium-to-long-term capital growth and who are prepared to accept the risks of investing in an emerging market. It will seek to benefit from the growth opportunities in the Indian economy by investing in a relatively-focused, actively-managed portfolio of approximately 40 of India’s leading companies. Many of these carefully selected stocks will be well-established, global businesses.
Simon Hillenbrand, managing director of UK retail sales at New Star, says: "Strong economic growth, a huge middle class of increasingly affluent consumers and a wealth of natural resources are just some of the reasons why investors have been enjoying good returns from India in recent years. We believe the long-term prospects for further healthy returns remain encouraging, which is why we are launching the New Star Indian Equity Fund."
Recognising the importance of local knowledge and research, New Star has entrusted the investment management to Tata Asset Management (Mauritius) Private Limited, part of the Tata Group. Simon Hillenbrand says: "Tata is one of India’s largest private sector conglomerates and one of the country’s most trusted companies. It has the highest reputation for integrity and professionalism. In the UK it is probably best known for its recent acquisition of Jaguar and Land Rover and of Corus, the steel manufacturer, in 2007."
An exciting investment market
India’s equity market has performed strongly over both the medium and long term although it has experienced periods of poor performance. According to the Bombay Stock Exchange (BSE) Sensex index, the equities market has generated, in sterling terms, compound annual returns of 15.38%* over the 15 years to the end of 2007. Buoyant economic growth, strong company earnings growth and high portfolio inflows have resulted in higher returns recently. In the past five years compound annual returns have risen to 46.65%* in local currency terms or 46.19%* when measured in sterling. Past performance is not necessarily a guide to future performance. The market offers a level of diversity not usually available to investors in emerging markets. Simon Hillenbrand says: "It is broad not just in the number of companies but also in the range of available sectors. Many emerging markets are driven primarily by a single sector. For example, oil dominates the Russian economy, as do commodities in Brazil and electronics hardware in South Korea. By contrast, the Indian market is diversified and contains a broad mix of sectors including basic industries, financial services and technology."
Picking up the growth baton
In the year to March 2008, India enjoyed estimated gross domestic product (GDP) growth of 8.7%, the second fastest growth rate among the world’s leading economies. For this calendar year, the International Monetary Fund (IMF) is forecasting GDP growth of 7.9%. This compares favourably with IMF forecasts for 2008 of 3.7% growth for the world economy, 0.5% for the US, 1.4% for the eurozone and 1.6% for the UK. According to Simon Hillenbrand, "With only about 16% of GDP accounted for by exports, compared to 40% for Asia excluding Japan as a whole, India should be less affected by US economic travails than most other countries. The key drivers of growth in India include spending on infrastructure, rising domestic consumption and strong growth in immature sectors such as financial services."
A disciplined investment approach
The New Star Indian Equity Fund will aim to buy companies that offer growth at a reasonable price (GARP) and that have sustainable competitive advantage and high quality management. Its investment process will involve sound research and risk management. Sectors focused on infrastructure and domestic consumption are expected to continue to grow robustly and the fund will consider stocks that may benefit from this growth. Examples of the types of companies that the fund may invest in include Larsen & Toubro, one of India’s leading engineering and construction firms, HDFC, India's largest mortgage-financing company, and Jain Irrigation, a supplier of micro-irrigation equipment.
*Source: Datastream, total return, based in UK sterling
