Modi’s Cash Ban Helped This Money Manager Beat 99% of Peers

For India bull Robert Marshall-Lee, stock valuations near the highest level in almost a decade are no deterrence.

The London-based money manager, who oversees 2.6 billion pounds ($3.4 billion) for Newton Investment Management, has stepped up allocations for Mumbai-listed equities to 31 percent, compared with their 9 percent weight in the MSCI Emerging Markets Index. He expects the rally in India to extend, calling it the most promising opportunity in the developing world.

“You have all the stars aligned and that is a very powerful, long-term driving force for the economy,” says Marshall-Lee, who cites Indian Prime Minister Narendra Modi’s economic policies, a young population and numerous well-managed companies as the factors distinguishing India from competing markets such as Russia, Brazil and China.

The money manager continued to buy Indian stocks even when the Modi government’s decision to withdraw high-value bank notes spurred a selloff last November. That bet is paying off. His emerging equity fund has returned 26 percent this year, beating 99 percent of its peers and rising to the top rank among 358 funds tracked by Morningstar Inc. in five-year performance.

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India is what money managers have begun to call a “consensus trade,” meaning almost every fund is bullish on the $2 trillion market which is benefiting from one of the world’s fastest growing economies. The S&P BSE Sensex Index reached a record high in early June and now trades around 18 times the projected earnings of its members in the next 12 months, a 19 percent premium to the average valuation in the past five years. Indian stocks have fallen 0.7 percent this week in their biggest drop since April.

With stock prices near a four-decade high and the economy growing at the slowest in two years, some investors are questioning the sustainability of India’s rally. Yet, Marshall-Lee says gains from rising consumer demand, an economy emerging from a painful credit cycle and a surfeit of entrepreneur-driven companies are far from finished.

He has three Indian companies in his top 10 stocks: Indiabulls Housing Finance, Maruti Suzuki India and ITC. The world’s second most populous nation has “very strong demographics, very low credit penetration, and an excellent and improving government which is unleashing productivity potential,” says Marshall-Lee.

India will roll out a new goods and services tax on July 1, creating a uniform market across the country for the first time. Modi’s growth policies also include subsidies for affordable housing and an extension of banking to remote villages. The economy will expand 7.3 percent in fiscal year 2018, 7.7 percent in fiscal year 2019 and 7.7 percent in fiscal year 2020, according to a survey conducted by Bloomberg News.

Source: Bloomberg Quint

https://www.bloombergquint.com/business/2017/06/29/modi-s-cash-ban-helped-this-money-manager-beat-99-of-his-peers