Goldman Sachs Asset Management is rebuilding its India-based team with a view to launching a suite of equity and debt products for domestic and international investors, potentially this year.

GSAM (India) currently has a team of eight in Mumbai covering research, compliance and admin, and headed by CEO and CIO Prashant Khemka.

GSAM received its domestic operating licence in the inauspicious month of September 2008 and quickly put a 20-strong team in place, including equity and fixed income coverage and sales.

It was granted regulatory approval to launch products early in 2009, but opted to delay because of lack of fundraising appetite on the back of the Lehman Brothers collapse and ensuing crisis.

GSAM downsized its India team in February 2009 and maintained an equity research presence for global products. But now it is seeking to rebuild the team and launch a suite of products, although exact timing is still being determined.

“Both equity [retail] and fixed income [institutional] are large opportunities in India. We intend to build a strong presence and capability in both, like we had [in 2009],” Khemka tells AsianInvestor on a visit to Hong Kong.

Asked why GSAM has not acted sooner to rebuild its India team, Khemka notes heavy outflows from India’s mutual fund industry over the past 12 to 15 months.

Average assets under management excluding domestic fund of funds stood at Rs6.7 trillion ($148 billion) in the final quarter of calendar 2010, a 16% drop on November 2009, according to the Association of Mutual Funds in India.

Association figures also show that total sales of all schemes in India’s mutual fund industry stood at about Rs6.4 trillion this January, which represented a sorry 28% year-on-year drop.

Despite this industry decline, Khemka believes the Indian market is still very promising, noting it has grown 16-fold over the past 20 years.

“Certainly later in the year [2009] with the election outcome being favourable things turned around [India’s Sensex rose 108% from March 2009 to the end of the year],” he explains. “But a build-out in India has to be done in a very thoughtful manner."

He suggests that Goldman would most likely look to launch a minimum suite of broad-based equity and debt products to begin with.

“If you were to look at what others have done in the marketplace, they have typically launched products in both fixed income and equity, initially with one or more fixed-income-type products and one or more equity-type products within the first three months of launch.

“I think that makes sense. Most of our competitors have multiple products for domestic investors, of which a few appeal to the global investor base.”

This move means that Goldman will be hiring, although Khemka declines to reveal whether it plans to rebuild its India team to 20, as before.

On a macroeconomic basis, he is confident that food-price inflation will fall from the high teens at present possibly to single digit levels within 12 months, provided unseasonal rain patterns do not persist.

“We have entered the year with inflation as the top-of-mind concern, spooking the market. With the caveat that oil prices do not show a sharp spike, I think exiting the year the inflation risk will have abated substantially.”

As far as the Indian equity market is concerned, Khemka notes that average valuation levels now are around 14x 12-month forward earnings, or about 10% below the 20-year historical average.

“We are at the early stages of what could be a long and strong corporate earnings cycle, so early in the cycle you are paying below a mid-cycle multiple, which is an attractive valuation,” he says, adding corporate earnings could grow 20% over the next 3-4 years.