Danica Pension is seeking to pick winners in India’s equity markets, as the world’s soon-to-be most populous country and its growth potential have caught the eye of the Danish pension fund.
Danica’s latest India mandate has shown a commitment to the market with an overallocation. Before the mandate began a year ago, Danica had for around a decade identified India as a part of its emerging Asia and general emerging markets strategy through local and global managers. However, as the Indian market continues to develop, its trajectory has become increasingly appealing, according to Esben Larsen, Danica Pension’s head of equities.
“We have high expectations for the long-term potential, with limited extra work for a developing country where we find the financial markets well-regulated, transparent and with a robust legal framework,” Larsen told AsianInvestor. “That builds confidence for us as an investor to keep allocating once we are past the minor, initial challenges to set up a presence.”
Danica Pension had DKK416 billion ($59.4 billion) of assets under management as of the end of 2022, of which about DKK120 billion was invested in equities.
Danica’s dedicated India mandate is managed externally. The fund also has global mandates in-house that use the MSCI ACWI as a benchmark and which can invest in India, although with a very low weighting. Within its portfolio of 50-70 stocks, its global mandate dominated by US exposure and includes perhaps one or two selected India stocks at most, Larsen said.
“We prefer well-driven and well-run companies. When you just buy an index, you also get less well-run companies,” he said. “Especially in the US, where you have the most thoroughly analysed companies, passive might make sense. In India, however, we have conducted thorough research on selecting the right manager that can beat the market.”
Danica has chosen to launch a new India-focused strategy through which it can buy a larger range of stocks with the Indian market as a benchmark. The goal is around 40 stocks that are thematic and therefore investments that aspire to beat the India market long term. Looking through the lens of the MSCI, Danica is confident of achieving such alpha.
India has a relatively large proportion of listed companies and a broad spectrum of quality, and Danica says it can achieve a strong performance if it picks the right stocks.
“In India, there is a bigger divergence between how well companies are run, as well as an information asymmetry in that market. Instead of just rushing into that market as blindfolded tourists and rely on a passive ‘a little bit of everything’ allocation, we believe active managers can outperform that approach,” Larsen said.
Although Danica says India is seeing “remarkable” development and also attractive short-term value, its appetite for the market also stems from the government’s long-term development plan to bring the country into closer economic alignment with the developed world, Larsen said.
In order for that ambition to be fulfilled, the living standards of a large number of people must be raised, creating many potential investment opportunities and making Danica very bullish on India long-term, he said.
Danica says hurdles remain and that there may be a long way to go, but Larsen emphasised that India had made significant progress in implementing plans for rejuvenation and reforms that made it more attractive to overseas investors.
He said such investment would help to develop the economy in a virtuous cycle as long as efforts continued to keep reforming and boosting its economic performance, and that Danica looked favourably on increasing its India allocation, especially in equities that it found most readily accessible.
INDIA VS. THE REST
“The next question is, then, of course, whether India can beat emerging Asia and emerging markets as a whole,” Larsen said. “Only time will tell, but we believe in India’s investment potential because of the interesting growth story unfolding and a benign government framework with an ambition to develop the country.”
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Larsen said Asia’s emerging markets accounted for the lion’s share of Danica’s emerging markets focus, at around 85%. The fund separates its equity portfolio into three pools, the other two being stocks on the domestic market and global stocks within developed economies, which in Asia include Japan and Singapore.
Danica Pension is a wholly-owned subsidiary of Danske Bank and handles Danske Bank Group’s activities in pension savings and life insurance for companies, organisations and private individuals.