In this Director Briefing, Mugunthan discusses:
- Growth opportunities presented by India’s capital markets
- Educating investors on the virtues and risks when investing in India
- Strategic priorities of India Avenue Investment Management
Over the last decade, the Indian economy has undergone a dramatic paradigm shift. The International Monetary Fund projected India’s GDP to grow by 7.4 percent in 2016–17, making it the world’s fastest-growing large economy. Many believe that this is just the start of a long term trend, with significant growth expected over the coming decades.
There is an emerging trend amongst global investors to access the exceptional growth opportunities India presents, while also limiting their exposure to the inherent risks present in a fast-growing, restructuring marketplace.
Eden Exchange recently spoke with Mugunthan Siva who is the Managing Director of India Avenue Investment Management in Australia. India Avenue Investment Management is a boutique asset management business focused on creating optimal investment solutions for foreign investors by participating in growth opportunities presented by India’s capital markets.
Thanks for talking with us Mugunthan. Firstly, what brought into the world of funds management and investment? Can you tell us about your background and career? What brought about the formation of the India Avenue Equity Fund?
Thank you for affording me and the India Avenue business time to speak on our proposition.
Investing, particularly on behalf of clients that entrust their hard-earned wealth to you, has always been a driving passion for me. It provides visible accountability on your skills and capability. The rewards are significant in increasing the wealth of all your clients. My career developed through employment with Australian Banks such as ANZ, Westpac, Macquarie and ING either in roles undertaking investment research, portfolio management or asset allocation. My only break from Australia was when I spent three years working in Mumbai, India for ING as a Chief Investment Officer for a start-up investment business.
Once I returned to Australia from my stint in Mumbai which ended in 2008, I continued to maintain the passion for India and started developing an investment proposition around the virtues of investing in India’s fast growing capital markets. In Australia, investor knowledge when it came to investing in developing markets like India was poor.
I believe that the India growth story is sustainable over multiple decades.
What makes India an attractive market for investors? What factors do you believe are the key long term triggers for sustainable growth?
India’s GDP growth has been the highest of any major economy at over 7%. This growth is driven by a demographic dividend which is a population of 1.3 billion people, with 50% being below the age of 25. This population is youthful, educated and English speaking which makes them employable. Given their capacity to earn an income, we see significant opportunities for “consumerism”. Additionally, the need for infrastructure is significant in order to enhance the potential of doing business and to reduce the bottlenecks which result in underutilized economic capacity.
Given this, India’s corporates are benefitting from a flourishing ecosystem of growth, opportunity and entrepreneurial skills. This has led to strong and sustainable corporate earnings growth for both listed and private companies. We expect that once infrastructure spending is undertaken, foreign and local investment increases and the opportunity for employment increases, corporates in India will be well placed to capitalise over next two decades at least.
Which segments of the Indian market does the Indian Avenue Equity Fund focus on? How are your team scouting for and assessing opportunities to add to your portfolio?
The India Avenue Equity Fund focuses on providing its investors with exposure to India’s growth story. Quite often, when investors access India they do so through a 5-15% allocation to India in an Emerging Market Fund or via an India based ETF. Generally, these investments do not always provide the best ‘pure-play’ on India’s true growth story. They focus more on the large and liquid companies in India which have largely emerged into global businesses with significant offshore revenues. Whilst these companies, particularly those involved in IT outsourcing, have been extremely successful over the past 20 years, they perhaps are not the best play on growth from demographics and the infrastructure requirement of India.
The India Avenue Equity Fund will focus on providing exposure to fast growing mid and small cap companies as well as to some quality large cap companies. Our team, dually based in Sydney, Australia and Mumbai, India are focused on portfolio management, whilst working with well-credentialed, local investment partners in India to source ideas on which companies to invest in. Our team in Mumbai is focused on monitoring and reviewing the skills of our investment partners in providing this advice, through our ongoing investment process.
There are some risks involved when investing in India. What are some of these and how do you position your portfolio to best mitigate these risks?
Investing in any single country, particularly a developing country like India, can bring its own unique risks. When investing in specific countries you need to consider the political and economic regime, the government and its powers, influences on the economy and the volatility of investment and currency markets.
When investing in India, a risk we see is that it is one of the largest democracies in the world. Therefore, implementation of change, reforms and initiatives can also be difficult. Additionally, we see potential political change as a negative, especially now that the Modi Government seems to have established some momentum on reforms.
Influences on the economy, which are hard to manage, include the oil price, as India is a significant importer and food prices in the event of poor monsoons. This can have an impact through rising inflation which can curtail economic growth.
Finally, the volatility of India’s stock market and its currency, whilst having reduced over the last 5 years, still remains more volatile than that of developed markets. It is our view that this volatility should be assessed as part of a portfolio, rather than as a stand-alone. Quite often these markets experience price volatility because foreign investors invest and withdraw funds based on their liquidity needs, rather than due to fundamentals of the Indian market. This creates additional angst for long-term investors seeking growth from markets like India.
The India Avenue Equity Fund mitigates some of these risks through a diversified portfolio across industries. These can alleviate some of the specific risks of industries which may be impacted by specific reforms or events.
By working with local investment partners in India we also benefit from local knowledge and insights which can help mitigate the risks for an international investor in India’s markets.
Additionally, we adopt an unhedged approach as Australian investors are well served to diversify their exposure to currencies given the potential weakness of the AUD.
What clients the Indian Avenue Equity Fund focus on? Who is the Fund open to?
As a business, India Avenue focuses on Australian and NZ clients. Our Fund has a wholesale and retail option and is therefore available across a range of investors from institutional to retail investors. It is our view that initially our proposition will appeal to High Net Worth, Family Offices and Dealer Group/Financial Planning Clients, given their lack of exposure to India despite increasing awareness of the region and its virtues from an investment perspective.
Our initial clients have been Family Offices, High Net Worth and Retail Investors. The Fund is open to sophisticated investors (wholesale) or retail investors (retail with $20,000 or more). We also have the capability to build customised mandates or provide advisory solutions for institutional investors
Through what channels is the Indian Avenue Equity fund engaging with the investor market in Australia and India?
India Avenue is focused on external third party relationships to promote its product. These third parties will allow us access to their network of either Family Office, High Net Worth or Financial Planning clients.
Additionally, we are focused on the media to promote our business and fund. This is done via social media (LinkedIn, Twitter and Website) and our PR campaign run by Manallack consulting. This has led to increased awareness in the AFR, Sky Business and Financial Press.
The Fund is seeded by Allan Moss, Nick Greiner and Brisbane based multi-family office, Keystone Private. Keystone Private has additionally taken a stake in the India Avenue business by providing working capital. How has this helped in the growth of the fund, especially when engaging with the respective Australian and Indian markets?
Keystone Private has provided working capital for the business and invested in the Fund and is an equity holder in the business. This definitely resonates with clients and intermediaries who are always looking at the sustainability of a business like ours.
Allan Moss’s name also has carried significant weight given his status as a respected businessman, investor, RBA Board member and ex-Macquarie Bank CEO. Seeding the Fund has definitely provided us with some additional credibility in the Australian marketplace.
What are the next steps in the development of the fund? What are your key goals and mandates?
The next steps for India Avenue is to build a strong track record, which matches our previous achievements at ING. We also seek to promote India and our business through research and content which educates investors on the virtues of investing in India.
We have recently received a research house rating from SQM research which rates us a 4 Star rating of Superior. In 2017 we will add a further such rating as well as seek to be added to investment platforms to enhance the accessibility of our Fund to clients.
Our first goal is to achieve Fund AUM which exceeds AUD$25m during 2017. This will allow for more investors to review our proposition alongside with the external research completed which vindicates our proposition.
Thanks for your time Mugunthan
Thanks for your time as well. I appreciate the opportunity to speak with you and to discuss India, which we feel will be an increasingly sought after investment over the next two decades.
About Indian Avenue Investment Management
India Avenue Investment Management (IAIM) is a business focused on delivering optimal investment solutions to investors seeking to access India’s fast growing capital markets. It is our view that investors should consider seeking to access these markets as part of their allocation to growth assets. Both the IMF and the World Bank see India as a leading global growth engine over the next few decades, which is likely to lead to significant opportunities for companies operating within the economy and thriving from strong entrepreneurial spirit locally.
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Wholesale refers to “sophisticated investors”. To qualify as a sophisticated investor the investor needs either an investment of A$500,000 or above or an accountant’s certification (not more than 6 months old) that the investor has either a net asset value above A$2,500,000 or earned above A$250,000 per annum for the last two consecutive financial years. Retail refers to investors who are not classified as “sophisticated investors” as described above with investments of AU$20,000 or more. For more information regarding features, benefits and risk of the Fund, please refer to the PDS http://bit.ly/2iRwcnW