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The Indian unit of GSAM, which received regulatory approval to operate from the Securities and Exchange Board of India (Sebi) last week, is now seeking approval from the regulator to launch the Goldman Sachs India Equity Fund.
The fund will invest at least 65% of its assets in stocks and equity-related securities in India, with the balance to be invested in debt and money market instruments. The fund will be benchmarked against the Bombay Stock Exchange 500 Index. Minimum investment will be Rs50,000 and the investment management and advisory fee is pegged at 1.25%
Fund managers who are keeping the faith in India note that the sell-off in IndiaÆs stock market has been overdone and sentiment is too pessimistic considering the solid fundamentals of many of the listed companies there.
Fear of a severe economic downturn has been one of the major triggers of the recent correction in IndiaÆs stock market, which has been the case for most markets in the region. IndiaÆs stock market scaled new highs in 2007, with the benchmark Bombay Stock Exchange's Sensitive Index, or Sensex, closing the year above the 20,000 mark. The Sensex ended 2007 at 20,287, gaining in excess of 47% for the year. So far this year, the Sensex is down around 27%.
In outlining the risks associated with IndiaÆs equities and fixed-income markets, GSAM India notes that investments may be affected by political, social, and economic developments. These could include changes in exchange rates and controls, interest rates, government policies, diplomatic conditions, relations with neighbouring countries, taxation policies and ethnic, religious and racial issues, the fund house says.
The relatively small size and inexperience of the securities markets in India and the limited volume of trading may also lead to a lack of liquidity and more volatility compared with more established markets, GSAM India says.
The fund house adds that settlement systems may be less developed in India than in more established markets, which could impede the portfolioÆs ability to effect portfolio transactions and may result in delayed settlement.
Prashant Khemka, CIO of GSAM India, will manage the fund. Khemka, who moved to Mumbai in September 2006, was previously the head of the GSAM research team in Mumbai. Prior to moving to Mumbai, he was a senior portfolio manager and co-chair of the investment committee for the growth equity team of GSAM in the US. He joined Goldman Sachs in 2000 as an investment research associate. Before GSAM, he worked as an assistant portfolio manager in the fundamental strategies group at State Street Global Advisors.
GSAM expects India to continue to be one of the fastest growing asset management markets in the world and will see total assets in its fund industry grow to Rs12.8 trillion ($325 billion) over the next five years, according to Boston-based research firm Cerulli Associates. Indian mutual fund assets stood at Rs5.4 trillion ($137.6 billion) at the end of 2007, up 67% from the year before.
GSAM is the latest in the string of new entrants to IndiaÆs mutual fund industry over the past two years. Mirae Asset Financial Group, AIG, Axa Investment Managers and Pioneer Global Asset Management are among those that have already set up asset management operations in India. German insurer Allianz is reportedly in the final stages of forming a fund management joint venture in India with a listed local firm.
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