Baring Asset Management is set to launch a flagship India equities fund next month, initially targeting retail investors as it seeks to build a track record for institutional sale.
The Baring India Fund, to launch on December 7 under the Ucits framework, will be a long-only relative return product invested across sectors in large- and mid-cap stocks. Its benchmark is the MSCI India Index.
At least 70% of the fund will be invested in domestic Indian equities, with up to 30% able to be invested in companies listed outside India which conduct a significant proportion of their business inside the country. It will have between 30 and 50 holdings.
In recognition of a hole in its platform, Barings hired Ajay Argal from Birla Sunlife to manage the fund. He joined on September 5 as head of Indian equities based in Hong Kong and was previously lead manager of the Birla Sunlife India Advantage Fund and the Excel India Fund.
Argal’s Advantage fund gained 5.8% and Excel 6.5% over one year against a 4.8% rise for MSCI India. They also compare favourably with the benchmark over three years, and year-to-date they have fallen -17.9% and -16.1%, against a -19.4% drop for the index. BSI 100 is at its lowest point in a year, having sunk over 20%.
Overall Barings had $288 million of assets invested in Indian equities by the end of October this year, mostly through its global emerging market fund and its Asia-Pacific fund, whose India weightings reflect the benchmark MSCI Asia-Pacific ex-Japan Index.
“Barings is very strong in emerging markets but India was the missing piece,” says Argal. “We are convinced India is a good long-term story, so we want to give this option to investors.”
Having worked in India for 18 years, Argal tells AsianInvestor he was seeking a change. “I wanted to come and work for a global organisation and broaden my global perspective,” he says. “You get much better top-down inputs here at Barings and inputs from the quantitative team.”
Asked where he expected demand for his Barings India fund to come from, he replies the Middle East, Europe and Southeast Asia. He says the aim is to start small and consistently beat the benchmark to build up a track record before ramping up sales to institutional investors.
He argues the timing is right for launch since most negatives have already been priced in to Indian stocks, including downward revisions in earnings, expectations for GDP growth and inflation. He expects India’s central bank to start lowering interest rates from April onwards. And from a valuations perspective, he believes the fund should appeal to global retail investors.
“When things come back typically you will see earnings growth return to around 15%, which would boil down to 7-8% GDP growth and inflation of 5-6%,” he adds. “That means top-line growth of 15-16%, which without a re-rating should be the ballpark returns that investors should get if they stay in the fund over a reasonable amount of time.”
Argal does not see any risks to his view from a fundamental perspective, given the demographic profile of a young population and rising income levels. The only risk, he says, is the timing of a rebound. “The exact bottoming of a market is very difficult to time.”
The Baring India Fund will largely be distributed through banks, with an annual management charge ranging from 1.5% for retail investors to 0.75% for professional investors. Money will be routed through Mauritius to take advantage of its tax treaty with India.