The diary: Vincent Lagger’s week

Vincent Lagger is manager of the Julius Baer Chindonesia fund at Swiss & Global Asset Management. His diary runs from 12-17 May

Vincent Lagger 700

Sunday A midnight landing in Delhi is not as bad as it sounds with temperatures bearable and the crowds sparse. It takes only a few minutes to exit the impressive brand new terminal and I then head to the Noida suburb, a short drive away.


Monday
My day begins with a meeting at Havells’ headquarters, a fast-growing branded electrical appliances company. It is actually quite a familiar name since it owns part of the successful global lighting products maker Sylvania. As Indian consumers’ aspirations evolve, design and retail experience become critical in a sector which remains largely unorganised. Havells is well positioned and its new domestic appliance line  stands up to the design of western brands.

 

Tuesday Insightful discussions with the management team of a TV broadcaster provide an overview of how social and consumer trends are unfolding across modern India. Unsurprisingly, international content proves very popular among the urban population. However, local movies, soap operas and Hindi news channels remain central to India’s culture. The mandatory move toward digitisation of the existing 130 million TV households will be a sustained revenue driver for the industry as collection of broadcasting fees will improve dramatically.


Wednesday
The next three days in Mumbai provided ample opportunity to investigate the struggling power and infrastructure sectors. India’s medium term economic prospects will crucially depend on a long-awaited reboot of the investment cycle. A manufacturer of prefabricated building solutions explained  how delayed government disbursements for education and sanitary infrastructure challenge the financial health of the business. These concerns were echoed by a leading cement producer which pointed at a lack of government action to breathe life and confidence into the construction sector.

The outlook for Tata Motors, one of our core holdings, looks positive as sales of the freshly revamped Range Rover are doing well and the prospects of the new Jaguar F-type roadster seem bright, especially in emerging markets. The £400m spent in recent factory expansion will start to bear fruits in the coming quarters.


Thursday
Rural consumption has occupied a central position in my investment strategy for the last four years. As farmers enjoy rising purchasing power and government sponsors a financial inclusion effort, Non-banking financial companies play an essential role in the development of India’s consumer finance. Mahindra & Mahindra Financial Services enjoys strong growth in vehicle financing as penetration is still low and affordability improves. Should the coming monsoon follow regular patterns and farmers enjoy abundant harvests, the company will be able to maintain its impressive historical 2 per cent credit loss ratio.

The day ends with a few drinks in a bar facing the Arabian Sea and a lively discussion with local investors about India achieving a “5.5 per cent Hindu rate of growth” despite sluggish global demand and a lack of government initiative. Debates about overcrowded subways, Delhi becoming a 100 million mega city and UK Diageo’s attempt to further consolidate its Indian spirit business at a lofty premium all remind me of the huge untapped opportunities which remain all over the country.


Friday
For my last day in Mumbai’s suffocating heat, I meet with an infrastructure financing company, a sector I’m currently watching closely. Despite concerns surrounding government inaction, my contact highlights recent improvements in the road sector where many stalled projects are being reallocated to financially stronger players.  On the power side, the viability of natural gas remains the biggest challenge for India’s energy future as the dispute on pricing drags on, while brand new gas-fired power plants remain shut.

I feel comforted by the general sense of realism expressed by the companies I met. Today India trades more cheaply in comparison to Asia than it did four years ago, providing a lot of attractive opportunities. Improving industrial activity and decisive government action in the energy sector should kick-start a new investment cycle and stimulate growth reflecting the real potential of what is becoming the largest market place in the world.