The India Capital Growth Fund (LON:IGC), which focuses on Indian mid-cap listed equities, is managed by Gaurav Narain, based in Mumbai, along with a team of seven analysts who work on a sector by sector basis. The trust is listed on the London Stock Exchange.
Covid-19 in India
Initially it looked as though India had avoided a second wave, however, that proved to not be the case. The situation on the ground, according to Narain, who spoke at April’s UK Investor Magazine conference, “is grim, as the peak of the current second wave is far exceeding the first peak which occurred in August 2020”. “It has caught many people by surprise,” Narain added. There are approximately 1.9m active cases in India with a mortality rate of 0.5%. The second comes as the vaccination roll-out is well under way with 8% of people – and 29% of the 45+ age group – receiving the first dose. “My sense is that the worry factor is not as much as it was in the first lockdown,” said Narain. “The central government is very clear that they’re not going to impose a strict lockdown, and the state governments have realised how damaging the lockdowns have been.” Despite the second wave the IMF is forecasting India to grow more than any other major economy in 2021 (11.5%) and 2022 (6.8%).
Disruptive Reforms
Since Modi came to power in 2014 the government has been trying to make India a better place to do business. The country introduced demonetisation, bankruptcy reform and changed the tax system. “These reforms were ultimately driven by digitisation,” said Narain and have led to a clean up of the banking sector in particular, an industry that emerged in good shape from the coronavirus-induced crisis.
The last five years in India have been about a structural overhaul, which caused an initial slowdown in India, but will prove beneficial for the country’s economy further down the road. This has created scepticism on the part of international investors, however, India Capital Growth Fund is of the view that growth is on the agenda moving forward.
“The government has identified $1.5trn worth of infrastructure projects over the next five years which will accelerate growth,” says Narain. He also outlined the government’s willingness to let the private sector lead the way, which represents a shift in how private enterprise is viewed in India. This has coincided with the privatisation of a number of government entities.
India Capital Growth Fund Portfolio
There have been several structural changes made to the fund towards a more cyclical portfolio. The fund has also switched a lot of its exposure from staples to consumer discretionary businesses. Materials (20.1%), financials (18.1%), consumer staples (12.8%) and consumer discretionary (10.5%) are the industries that make up the largest proportion of its holdings. The fund is also diversified in terms of market capitalisation with small-caps making up 27.2%, mid-caps at 57.5% and large-caps at 13.8%. India Capital Growth invests mostly in small and mid-cap companies because it feels that is where the engine room for growth is in the Indian economy.
China vs India
A large number of companies are now moving their manufacturing bases from China to India. At present, India’s costs are one third of China’s, while in the 1980’s the countries were on a par. This has led to a number of company’s being incentivised to move their production facilities to India.
Apple is planning to shift 20% of its production capacity, while Samsung will double production in Noida factory to 120m units per annum. Amazon has also committed to exporting $10bn of made-in-India goods by 2025.
