• 07/05/2016

Vazirani of Jupiter sees Modi’s work driving unprecedented opportunities

Benefiting From India’s Transformation

By Matthew Fletcher

When it comes to picking stocks, it’s all about attention to detail – something at which Jupiter Asset Management excels. So it’s no surprise that Jupiter’s India Select SICAV fund, managed by Avinash Vazirani, has consistently outpaced its benchmark since it was launched in mid-2008. In recognition of this focus on excellence, the Fund has been awarded the title of Best-in-Class – India Equity in BENCHMARK Fund of the Year Awards 2016.

Tapping into India’s Domestic Growth Potential

Vazirani adopts an unconstrained, bottom-up approach to stock selection, looking for companies with price-earnings and price-to-book ratios that are less than the market average, but where historical and forward earnings-per-share growth are above it. Typically, he prefers to have met the management over a period of time before investing. “We’re looking for good businesses run by strong teams that have the interests of shareholders at heart,” he explained.

Vazirani says that liquidity is not one of his main investment criteria when selecting companies for the Fund. “We want the businesses we invest in to have sustainable incomes and cashflow. If you go through our portfolio, you’ll find they generally have strong brands and intellectual property, higher barriers to entry and are more domestically focused. Essentially, we’re aiming to benefit from domestic Indian growth.”

As a result of these parameters, the Fund tends to be overweight in consumer companies and financials and underweight in commodities compared with its benchmark, the MSCI India index.

Benefiting from Modi’s Anti-Corruption Drive

In Vazirani’s view, the long-term prospects for India continues to look very bright. There are five main factors that he thinks will drive long term profitability of Indian companies and which he believes are still under-appreciated by the market: political stability, introduction of direct benefit transfers (DBT), implementation of a country-wide goods and services tax (GST), increasing access to high-speed internet and a shift from physical to financial savings.

The big news for the Indian economy was the decision of Prime Minister Narendra Modi last November to remove high-denomination notes from circulation, or ‘demonetize’ them. This surprise announcement was chiefly aimed at curbing terrorism and tackling unaccounted-for corrupt money. Since the notes that were deemed to be no longer legal tender, principally 500-rupee and 1,000-rupee notes, represented 86% of the cash in circulation, or about $220 billion, this had an immediate impact on both the ‘black’ and official economies.

Several sectors of the economy that were reliant on cash payments have been hit. For example, in November and into early December, the operations of trucking and haulier groups and other logistics companies came to a standstill, impacting corporate sales across the board, Vazirani explains. On the plus side, Indians reacted with ingenuity to the change, he says, with shop keepers erecting QR codes outsides their premises in order to facilitate the collection of payments electronically. Indeed, Vazirani believes that demonetization, as well as boosting tax revenues by bringing money back into the official economy, will also help the transition to a more digital economy as more Indians do their banking online.

In the short term, the anecdotal evidence is that the wider economy has been negatively impacted by demonetization. For 2017, the IMF has cut its growth projection for the country by 1 percentage point to 6.6%, citing its impact. But there is considerable uncertainty about how it will feed through to companies’ bottom lines in the near term. “We can see six to twelve months down the line. The uncertainty is in the next three to six months,” says Vazirani.

For him, demonetization is strongly positive for both the economy and the stock market. “The reduction in corruption and greater tax compliance will bring benefits long term. That’s what’s being missed by commentators,” he says. Companies that operate in India’s unorganized sector, and that were key players in the cash economy, will now be brought into the organized sector and be required to pay their taxes. The result will be a level playing field to the benefit of listed companies that are more efficient, better run and meet their tax obligations. Most of the companies he invests in are confident that they will gain market share from the unorganized sector.

It’s too early to assess the long-term winners and losers from demonetization, says Vazirani. But two clear beneficiaries are financial services and financial technology companies as Indians take their money out of gold and property, impacting construction firms, and put it into financial products such as insurance, online savings accounts and mutual funds.  Vazirani also predicts lower interest rates and borrowing costs for companies as more money is channelled through the official financial system. This should benefit public sector banks, in which the Fund has several holdings, as corporate customers get better at meeting their loan repayment obligations.

On the Cusp of Transformational Change

India was one of the better performing emerging markets in 2016, though the stock market did not fare as well. However, that hasn’t stopped the Fund’s outperformance. 2017 brings a number of uncertainties from outside India. Donald Trump’s election as US president could usher in a new era of more fractious trade relations, starting with his decision to withdraw the US from the Trans-Pacific Partnership free trade agreement. The prospect of higher US interest rates could also negatively impact foreign investor appetite for Indian equities.

Vazirani points out that India does not have a free trade agreement with the US and so is less exposed to Trump’s policy changes on that front. And he says that, despite concerns that the growing protectionist sentiment in the US may affect demand for Indian information technology services, there remains a huge shortage within the US for Indian software engineers and IT services. “Trump is a billionaire businessman and we should trust the decision of the American people and wait and see,” says Vazirani. A hike in US interest rates has resulted in greater selling by foreign equity investors in recent months, he says, but this has been offset in part by an increase in domestic inflows into Indian mutual funds.

More important for India and its markets in the long term is Modi’s success in introducing both demonetization and a new goods-and-services tax, which will finally come into effect in the summer after being under discussion for decades. The tax will significantly simplify India’s convoluted tax system and improve the ease of doing business. For Vazirani, they represent some of the biggest constitutional advances since Indian independence. “Modi has achieved a great deal already. He has done so much. You mustn’t underestimate what has been achieved. India is on the cusp of transformational change,” he says. “I have never been so convinced about companies’ ability to make money, and therefore investment opportunities, in all the years I’ve been investing in India.” BM



Matthew Fletcher 撰文

說到選股,一切皆關乎對細節的認真探究,這正正是木星資產管理的優勝之處。因此,由文智華(Avinash Vazirani)管理的木星印度精選SICAV基金,自2008年中推出起表現一直跑贏基準指數。 為表彰此方面的卓著表現,基金已獲評為《指標》2016年度基金大獎印度股票「同級最佳」基金。






他提出五個將帶動印度公司的長遠盈利能力,但目前仍被市場低估的因素,包括:政治穩定性、引入「福利直接轉帳」(DBT)計劃、在全國實施商品及服務稅(GST)、增加高速互聯網的覆蓋率,以及把人民的實體儲蓄轉化成金融儲蓄。去年十一月,總理納倫德拉・莫迪(Narendra Modi)決定廢除大面額現鈔的流通,或稱「廢鈔」,是對印度經濟有重大影響的事件。此項令人震驚的公佈,主要為了遏制恐怖主義發展,杜絕不明來歷的黑錢。由於被剔出法定貨幣的鈔票,包括主要為500 盧比及 1,000 盧比鈔票,佔總流通現鈔量的86%,或約2,200 億元,此舉對「黑市」經濟及官方經濟均構成直接衝擊。






印度是2016年表現較佳的新興市場之一,雖然股市不算太好,未有礙此基金跑贏大市。2017年的外圍環境正為印度帶來種種不明朗因素。自唐納・特朗普(Donald Trump)當選美國總統,並決定美國退出《跨太平洋夥伴關係自由貿易協定》起,可能已拉開貿易關係不穩的新時代序幕。美國息率上升的預期,可能有損海外投資者對印度證券的投資意欲。


對印度及長遠股市前景更重要的是,莫迪能夠成功推行廢止大面額現鈔,並令已討論了數十年的商品及服務稅,最終能於今年夏季推行。有關稅項將大大簡化印度繁複的稅制,同時令營商更加便利。對於文智華而言,這些是印度自獨立以來最大的制度改進。他說:「莫迪已取得很大的成功,他所作出的改變是如此驚人,你不能低估已推措施的成效。印度現正處於變革期的開端。」他續說:「投資印度多年,我從未如此深信各公司的未來賺錢能力和投資契機。」 BM