WIOF India Performance Fund

Investment Advisor: Reliance Wealth Management Limited

(August 2012)

How has the Fund performed recently in comparison with local markets and what have been the main drivers in those markets in the past few months?

The Fund has been keeping pace with developments in the Indian equity markets and has recently been restructured to follow a clear investment strategy of taking exposure to long-term sustainable growth businesses. This bottom up approach to investing is expected to benefit the Fund going forward.

How large is the correlation between India and global markets and how does that correlation limit, or support, opportunities for foreign investors?

Indian equity markets are fairly dependent on foreign fund flows and therefore in the short term are highly correlated to regional markets. However, India is clearly a domestic demand growth story and with low dependence on exports is expected to do better than many other markets in the Asian region, given the current global challenges for growth.

How much of India’s very large economic growth over the last decade has been driven by the domestic market and is the domestic market strong enough to continue to drive similar-sized growth over the next decade?

More than 60% of India’s population of 1.2 billion continues to reside in semi-urban and rural areas. As rural incomes go up, led by higher agricultural income and additional streams of revenues, demand for essential and aspirational products is likely to continue growing at a fast pace.


Various economic surveys have suggested GDP growth in India of between 7% and 9% annually up to 2016. Do you think this is realistic?

Over the longer term, this is achievable given the underlying dynamics of a growing economy. Internationalisation, higher outsourcing opportunities and high disposable income will drive this growth in the years to come.

India is a major oil importer. How seriously would a sharp rise in oil prices, for example in the event of conflict between Iran and the US, affect Indian companies and, through that, the equities market?

Oil prices have actually risen quite sharply already. However, as has been seen in the past as well, a rise beyond a certain point leads to demand destruction and therefore a price correction to more realistic levels. Thus, while India will have to live and adjust to a gradual increase in oil prices, any spike in prices is likely to be short-lived. With enough foreign currency reserves and an increasing focus on the domestic output of oil and gas, India should be able to cope with a reasonable oil price increase.


Investors often cite an urgent need for economic reforms in India, but the government seems reluctant or unable to push ahead with such reforms at the moment. How seriously will delays to, or a lack of, reforms hurt Indian markets?

The country is going through a bit of a policy paralysis due to the fact that the current government is a coalition. Reflecting the temporary stalling of policy initiatives, Indian equity markets have remained range bound and are now quite cheap in comparison. However, recent events indicate that the ruling parties are cognisant of the issues and are taking effective steps within the constraints faced.


Are there any key economic reforms you feel the government must introduce soon that would improve the investment environment significantly?

The government is now pushing through reforms in the capital account by allowing qualified foreign investors to invest directly into domestic capital markets. We believe this is a big step and will have significant positive implications in the longer term. Similarly, there are now steps being contemplated to increase foreign ownership limits in restricted areas like insurance and aviation. Again, such steps will have considerable positive implications.


What does the Indian market offer to investors which other emerging markets, especially the other BRIC nations, do not?

India is one of the very few English-speaking democracies of size. Entrepreneurship is very high in the country and scalable business models can be implemented due to a large educated population. India is increasingly becoming the ‘service centre’ for the world with high quality intellectual outsourcing in the areas of IT, research and development, engineering, medicine and law, among others.

India is often specifically compared to China. Are there any fundamental economic or market differences between the two countries which make India a more attractive investment proposition?

The English-speaking population and democratic framework of the country provide unique advantages for a foreign investor. Democratic processes are normally slow and frustrating, but given the attempt to build consensus for new proposals, they provide long term stability and credibility.


Many experts say India’s population demographics, e.g. a very high proportion of the population being of working age, present it with an enormous economic advantage. How do you think these favourable demographics will translate into opportunities for investors in the coming years?

Indian companies and businesses are expected to thrive as GDP grows and the economic environment remains conducive. Equity investors into India can participate in this long-term growth. India is one of the very few countries in the world which has a ‘sizeable opportunity’ - a roughly USD1 trillion market capitalization that is ‘high growth’ (between 7-9% per annum GDP growth) - and also has ‘longevity’ over the next few decades.


What do you see as the prospects for the Indian market in the next three to six months?

While there may be volatility in the markets over the next three to six months due to a lack of visibility in the reform process, we believe local markets as a whole have become fairly attractive. Given a track record of generating 15-20% per annum returns in local currency, we see similar or better returns over the next 3-4 years. Also, with the Indian rupee already weakened to what appears a fundamental low, we do not see it depreciating much further.


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