India Promises Steep Growth: 2 Fund Picks
Investing in India has been very profitable this year. The country’s key benchmarks, Sensex and Nifty, have touched all-time highs repeatedly this year. The S&P BSE SENSEX is up 26.6% year to date and has gained 34.4% in the last one year. Meanwhile, CNX NIFTY has gained 27% so far this year and added 35.8% in one year. The gains have come amid an election year, which was held in May. A resounding win by BJP-led coalition boosted markets. The gains continued and positive economic indicators too have kept the uptrend alive.
Tomorrow, India’s Prime Minister Narendra Modi will be launching the “Make in India” campaign. The campaign aims to turn India into a global manufacturing center. About 3,000 top global companies are being targeted in this ambitious campaign. Analysts lauded the initiative as they said reviving manufacturing sector is a great move to evolve from years of stagnant growth.
After years of economic distress, India is undergoing a recovery. In fact, it is likely that as early as 2016, India could move ahead of China. According to a senior economist in Singapore with CLSA, India is likely to register a 7.2% growth rate in 2016. China is expected to grow at 7.1% during this period.
The upsurge is good news for funds that focuses on Indian companies. Some funds have already soared and certain top Zacks Rank funds are expected to continue the momentum.
Promising Trends and Forecasts
Data released in late August showed India’s gross domestic product expanded at 5.7% in three months ended Jun 30. This was the strongest rate of growth in over two years. Now, Finance Secretary Arvind Mayaram is confident of India taking its GDP growth beyond 7% in the next two to three years.
“From 4.7% growth in the last fiscal, the Indian economy grew by 5.7% in Q1 of the current financial year 2014-15. Business confidence is back and even though still tentative, growth in industrial sector, specially manufacturing, is showing an uptick. We are confident that by pursuing growth inducing policies, the Government would contribute fully to going back to a +7 per cent growth within two to three years,” Mayaram said at G20 Deputies Meeting.
Additionally, India also seems to be tiding over its inflationary woes. Last month, consumer prices increased by 7.8%, a marginal improvement from the 7.96% recorded in July. On the other hand, wholesale prices moved up 3.74% in August, the slowest pace since 2009. This is a significant decline from the 5.19% increase witnessed in July. Analysts believe that the decline was triggered by a drop in fuel and vegetable prices.
Further, the trade deficit has decreased to its lowest level in a year, helping the rupee rebound from a one-month low. This occurred because a decline in import costs was triggered by lower fuel prices. Further, a decline in industrial production in the U.S. reduced concerns about a sooner than expected Fed rate hike. This also supported gains for the rupee.
Funds to Buy
Here we will suggest 2 funds that focus investing in Indian companies. These funds carry either a Zacks Mutual Fund Rank #1 (Strong Buy) or Zacks Mutual Fund Rank #2 (Buy) as we expect the funds to outperform its peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but the likely future success of the fund.
These funds also have strong year-to-date and one-year gains.
Matthews India Investor (MINDX) seeks capital growth over the long term. The fund invests a lion’s share of its assets in stocks and convertible securities of firms based in India. Though the fund invests in companies of all sizes, the adviser expects the fund to invest in mid to large-cap companies.
The fund currently carries a Zacks Mutual Fund Rank #1 (Strong Buy). The fund has returned 55.3% year to date and has added 68.1% in one year.
The fund has an annual expense ratio of 1.13% as compared to category average of 1.71%. The fund carries no sales load.
The fund’s top holdings Kotak Mahindra Bank Limited, Emami Ltd and AIA Engineering Ltd have gained 43.1%, 46.2% and 96.5% year to date, respectively, in Indian markets.
Eaton Vance Greater India A (ETGIX) invests most of its assets in Indian equities and companies surrounding India. A minimum of 50% of its assets are parked in Indian companies. The fund invests in companies of all market capitalizations.
The fund currently carries a Zacks Mutual Fund Rank #1 (Strong Buy). The fund has returned 36.7% year to date and has added 50.1% in one year.
However, the fund is somewhat expensive as its annual expense ratio of 1.88% is higher than category average of 1.71%. The fund carries a max front end sales load of 5.75% as compared to category average of 5.50%. Nonetheless, the fund has no max deferred sales load as against category average of 2%.
The fund’s top holdings Housing Development Finance Corporation Limited and ICICI Bank Ltd have gained 32.6% and 37.8% year to date, respectively, in Indian markets. ITC Holdings Corp. (ITC), which is publicly traded in the US, has gained 12.2% so far this year.
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Read the analyst report on ETGIX
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