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Home > Media > Manager pushes India’s positive story

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Manager pushes India’s positive story
FTfm (Financial Times)
28th June 2009

Alroy Lobo believes India may be the source of excellent investment returns but only if international investors are prepared to commit their money.

“In India there’s a lot of latent demand potential,” says Mr Lobo, global head of equities at Kotak Mahindra Asset Management. “The question is supply – and supply can be created only if funding is available.”

The asset manager, a subsidiary of the Indian bank of the same name, is attempting to persuade foreign investors they can create an opportunity for themselves by helping stimulate growth in India through investment.

While Kotak Group has nearly $11bn (£6.6bn, €7.8bn) under management, just $1.6bn is from international investors. Mr Lobo was recently on a roadshow, meeting institutional investors and advisers to rich people, explaining why the time is right to put money into India. Interest is returning after the global freeze following last year’s market turmoil, he says.

Although the success story of the Bric economies (Brazil, Russia, India and China) took a hit last year as their markets plunged along with other global markets, investors are starting to look to China at least as a potential driver of economic and financial recovery.

India has been seen as less of an economic powerhouse in recent months, but Mr Lobo believes this is a mistaken view. For one thing, the world’s biggest democracy achieved a new level of political stability in recent elections, he contends. “This government got a strong mandate. So, now we have stability, we have less of coalition politics and, in my opinion, that means the ability to implement reforms now is far better than what you have seen in the past.”

He also suggests there is pent up demand for goods and services in India, which infrastructure investment would unleash. “The one significant difference between India and China is China has created supply and now demand has to fill that supply. In India the demand exists and now supply has to meet demand.”

Mr Lobo recommends investing in stocks exposed to the growth of infrastructure, such as port owners, construction companies and even infrastructure financing companies.

As roads are built, making it easier for people to transport and buy goods, he also expects consumer stocks to benefit. “If you look at the consumption theme, it’s purely based on demographics,” he explains. “India has got a young working population and the number of people in the zero to 15 years [category] is very large, which means India is going to be young for a significant period of time.” Kotak’s onshore fund range includes a “lifestyle” fund that offers exposure to the predicted consumer growth, but it has not yet been included in the offshore range available to external investors.

Outsourcing is another theme familiar to anyone who has heard optimistic projections for India. Mr Lobo claims the story is far from over, as companies worldwide try to manage costs and eke out competitive advantage.

The lower cost of qualified IT workers in India compared with Europe or the US can translate either into cost savings or time saving, he says. Lower costs make some projects feasible that would be impossible in their home countries due to their scale, he says.

Mr Lobo sees one other strong theme in the Indian market, but international investors may fight shy for a while longer: financial stocks are likely to do well, he predicts. With relatively low market penetration and a traditionally cautious industry, Indian banks were not exposed to the toxic assets that dragged down the global industry last year and have positive growth expectations, he says.

Although he admits penetration is low because financial literacy is poor, the recent introduction of a state-sponsored pension scheme could change this. “Everybody will have a pension fund account in due course of time, some of that will start moving into equities and that has significant implications for the character of the capital markets,” he says.

All of this will partly depend on enough overseas investors believing his story and investing sufficient funds to develop the infrastructure needed for economic growth.

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