Ocean Dial sees growth in India’s consumer market

Ocean Dial Asset Management has launched a Dublin-listed Ucits IV, open-ended fund called the Gateway to India fund which invests in a range of Indian stocks.

The fund was seeded in September 2010 with £9.4m backing by parent Caledonia Investments.

David Cornell, the investment adviser responsible for managing the fund, believes they are well placed to benefit from the structural growth potential of the domestic economy.

Cornell, based in Mumbai, says he is currently bullish on financial stocks and underweight in energy and IT sectors.

The investment adviser says: “From the current global perspective the investment case for India is once again becoming compelling. This combined with capital market friendly reforms recently announced by the Indian government and the pending onset of a monetary easing cycle bode well for positive absolute returns in the future. India is a market that cannot be ignored and over time will increasingly become a consideration for all equity portfolios.”

Looking at structural themes, Cornell identifies demographics, urbanisation, consumer shift from unbranded to branded products, cultural focus on education and growth in mortgage credit.

He adds: “The Gateway to India fund looks to differentiate itself from other India focused funds via an unconstrained multi cap investment style, a focus on domestic investment themes, and a concentrated portfolio of companies with long term growth potential and the highest quality of management. We will strive to deliver our investors absolute returns in excess of the market with minimum levels of volatility over the long term.”

“We are very negative on IT and energy. We feel with IT, the competitive edge the Indian service providers have had over the last ten years is basically over, it is not reflected in the multiples you pay for the companies,” says Cornell.

“We recognise they are very cash flow positive, we recognise that they are very clean, we recognise that there is still a market opportunity for them to expand into different countries outside the US and Europe,”

He says large corporates are looking to cut their IT costs in one way or another and identifies the four major players in India’s IT sector as Infosys, TCS, HCL Technology and Whipro.

The investment adviser also remains negative on investing in the Indian energy sector and identifies it is a problematic area having very little exposure in his fund.

He says: “We are massively underweight in energy. I have to have some exposure, clearly it’s a part I can’t control. Oil exposure in India tends to be very government-controlled and subject to all sorts of influences that I have no control over.

“Therefore I tend to stay away from it. I do have exposure in the fund because I need to be geared to either rising or falling oil prices in one way another.”

Elsewhere, Cornell remains bullish about the consumer sector, adding: “It’s fairly clear there’s a massive opportunity in consumer not least because as India globalises the consumption trends we are witnessing are pretty irreversible.”

The dynamics of family life, and therefore consumption attitudes, are changing in India, he explains.

Cornell says an “irreversible” change in lifestyle is driving demand for consumption of various products where penetration levels are low, with consistent demand for products such as face-cream, haircare, shaving, or motorcycles.

“We see a shift in demand from unbranded products to branded as real incomes rise and that is the key, we are very bullish on the growth in real income in India, as we see incomes for houses doubling over the next 30 years,” he adds.