Baring India fund “more cautious” on consumer story

The new Baring India fund will be relatively cautious on the country’s popular consumer growth story, but is poised to target opportunities in the telecoms, healthcare and financial sectors, its manager reveals.

Baring Asset Management launched the fund on December 7 for recent hire Ajay Argal. The fund will concentrate on Indian equities and plans to capitalise on the country’s increasing urbanisation.

Offering further details of the portfolio’s construction, Argal says consumer stocks are unlikely to be the driving force behind the portfolio.

“While we recognise that wealth creation and the rise of the Indian consumer is a powerful long-term growth story, we are relatively cautious on the more immediate outlook for consumer-related sectors,” he says.

The manager notes that both the consumer staples and discretionary sectors have performed well in recent months, meaning there is broadly limited upside potential at current valuations. Furthermore, he says the country’s high interest rates may affect consumer spending and firms’ profitability.

But Argal says he is positive on the outlook for Indian telecoms companies as he expects their earnings to bounce back after being held down by consumer-friendly regulation.

“We are encouraged that the Indian government is now planning to ease the regulatory burden on operators and allow some consolidation in the sector,” he explains. “This should positively impact upon earnings for some of the larger telecom services firms.”

Argal adds that the sector should benefit from the ongoing rise in mobile phone use. Just 60% of Indian consumers currently own a mobile phone SIM card, he notes, which creates significant growth potential in the coming years.

In addition, the manager is interested in the Indian healthcare sector. The country is home to a number of established pharmaceutical companies and has a number of firms that benefit from good cash flow and high earnings visibility, Argal claims.

“Such firms not only enjoy a strong position in the domestic market, but are increasingly exploiting India’s cost advantage to expand into the US generics market, which offers huge growth potential,” he says.

Financials will also be a “key focus” for the Baring India fund, Argal says. Although he is cautious on their short-term outlook, he claims opportunities can still be found in high-quality banks with low funding costs and a low risk loan book.

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