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India’s top and bottom funds

A look at India equity funds as economic growth slows.

Over the trailing three years, the Manulife India Equity Fund has been the top performer (45.2%) among 26 India equity funds in the SFC-registered universe, according to FE Fundinfo data.

Over the same period, the JGF-Jupiter India Select Fund has been the bottom performer, with the only negative return in the category of peer funds (-3.27%).

The Manulife product has the highest exposure to financials, which make up 31.6% of the portfolio, FE Fundinfo data shows. Likewise, the second best performer, the Amundi SBI FM India Equity has the top exposure to financials at 40%.

The Jupiter fund, which is the bottom performer, is less concentrated with top ten holdings representing 46.8% of the whole portfolio. Perhaps significantly, it has the most exposure to the consumer sector (24%) and is therefore vulnerable to growth slowdown.

Slower GDP

Looking at the broader picture, India’s GDP growth slowed to 5.0% YoY in Q2 2019, down from 5.8% in the previous quarter. Q2 growth was below market expectations of 5.7% and was the slowest growth rate recorded for six years.

The main drag on growth came from consumption, which grew by a paltry 3.1% YoY in Q2, the lowest level in four years, according to a report from Deutsche Bank.

The report also noted that “fixed investment growth remained low at 3.7% YoY in Q2 (vs 3.6% in Q1), much slower than the double-digit growth of half a year ago. Fixed investment growth slowed because of weak business sentiment.”

To cope with the situation, Nirmala Sitharaman, the finance minister, announced several policies to stimulate growth in August. These include measures intended to improve the transmission of monetary easing and tax cuts for foreign portfolio investments and start-ups.

India tilt

Some asset managers such as Goldman Sachs Asset Management retain bullish views on India equities.

James Ashley, head of international markets strategy at the firm, said earlier that his top pick among emerging market equities is India because of the electoral mandate for prime minister Modi to press ahead with reforms and due to “positive demographics”, as the country’s young population becomes richer.

His optimism is in sharp contrast to Moody’s, which downgraded India’s outlook to negative from stable earlier this month, citing “increasing risks that economic growth will remain materially lower than in the past, partly reflecting lower government and policy effectiveness at addressing long-standing economic and institutional weaknesses”, FSA previously reported.

India equity funds – top and bottom three

Source: FE Fundinfo. In US dollars. The MSCI India is for reference only and may not be the benchmark for the funds.

Part of the Mark Allen Group.