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Behind the India fund Chilean AFPs are backing

Behind the India fund Chilean AFPs are backing

Despite a slowdown in India’s growth rates, Franklin Templeton manager Sukumar Rajah believes the country remains among the fastest-growing economies in the world.

India’s growth rates dropped from about 9.2% in the first quarter of 2016 to 6.1% in the first quarter of 2017.

Still, Rajah said the slowdown appears to be temporary and mainly linked to a demonetization program the government implemented in November by scrapping two high-denomination bills.

He added that government programs such as an initiative to increase tax compliance should also support India’s growth.

‘Despite the uneven economic recovery in India, due to both internal and external headwinds, we believe that with accelerating consumption and public investment, combined with benign inflation, a reform-oriented government and robust external balances, India could be among the fastest-growing economies in the world for the next 3-5 years,’ he added.  

The Citywire AAA-rated manager runs the Franklin India fund, which ranks as one of the top ten international fund picks by Chile's six pension funds. As of the end of June, the AFPs had invested roughly $1.9 billion in the $4.3 billion vehicle.  

Rajah has returned 32.33% in the past three years while its Citywire-assigned benchmark, the MSCI India TR, has risen 13.36%. 

Bank bet

Indian privately-owned banks rank as one of that country's top bets for Rajah.

‘The overall financial industry is undergoing structural growth as economic growth helps to boost incomes and demand for financial services,’ Rajah said. ‘Growing demand for credit and investment services is driven by the country’s large, well-educated workforce and rising middle class.’

In Rajah's view, private banks stand to benefit from India's rising appetite for financial services over state-owned banks that have come under pressure due to bad loan ratios.

Going forward, Rajah said he expects the growth of private-sector banking to hinge on factors such as the ability to use technology to boost productivity and reach new customer demographics.

For example, HDFC Bank, a core holding in Rajah’s portfolio, has been using technology to improve risk management through analytics to identify patterns such as frequent address changes, he said.

As of June 30, the fund's top sector allocations were financials with 34.37%, consumer discretionary with 16.1% and industrials with 13.43%.

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