Pro-Growth Reforms are the Way Forward
Prime Minister Narendra Modi and his Bharatiya Janata Party (BJP) celebrated a landslide victory in India’s state elections on Saturday, March 11, 2017. The win served as affirmation that millions of Indian citizens overwhelmingly support the direction of the country under Prime Minister Modi, and positions his party for a second term in 2019.
Prime Minister Modi’s BJP party won an impressive 312 seats in the 403-member assembly of Uttar Pradesh, India’s largest state by population.1
Since coming to power, Prime Minister Modi has brought sweeping reforms to India, including opening up the country to more foreign investment and implementing measures such as demonetization and a Goods and Services Tax (GST) bill designed to increase tax compliance and government revenue. India remains one of the fastest-growing major economies in the world and a premier investment destination under Prime Minister Modi’s leadership.
Commenting on the results, Excel Funds President and CEO, Bhim D. Asdhir highlighted, “This is a historic result for the BJP and great news for India. [Prime Minister] Modi has brought about so much positive change to the country, and his victory in these state elections show that there can be greater consensus on pro-growth reforms going forward. The markets have also reacted very positively. We see this is a major catalyst for more outperformance and a boost for investors in India.”
Sectors in Focus: Financials, Infrastructure and Consumer Discretionary
Indian markets traded higher following the outcome of the recently concluded state elections, with the widely tracked Nifty 50 Index on course to reach a fresh record high.2 The rupee also advanced, thanks to the news.
The benchmark BSE Sensex Index is up 14.9%, in Canadian dollar terms, so far in 2017.3 Some of the key sectors to watch following the election results, include financials, infrastructure and consumption.
In the financial sector, which has been a big mover since the results were announced, HDFC Bank Limited, India’s second-largest private bank, has gained 5.1%, and is up 17.2% year-to-date.3 HDFC Bank Limited is also a top holding in the Excel India Fund, which has a 31.3% allocation to financials -- materials (12.5%) and consumer discretionary (12.0%) are the next two largest sector allocations in the portfolio. 4 The Excel India Fund has a longstanding track record of outperforming the BSE Sensex and is able to do this by investing in stocks that trade just outside the index.3 One such, off-benchmark, financial services stock that the fund holds is Yes Bank Limited, which is up 4.8% since the elections and has gained 37.3% this year.3
Excel Funds also offers direct exposure to the India small and mid-cap universe through the Excel New India Leaders Fund, as well as access to the Indian fixed-income market via the Excel India Balanced Fund. Both these funds also target alpha by investing outside the index and based on current holdings data, are invested in names such as Dewan Housing Finance Corporation Limited which is up 46.0% in 2017, past the date of the election results, and Tata Metaliks Limited which has advanced 60.4%, over the same time frame.3 4 Because these securities, and many of the holdings in each of these three funds, do not trade in any of the major benchmarks, the potential growth that they can provide is not accessible by most passive strategies, including ETFs.
Excel Funds offers Canadian investors unique access to the entire spectrum of the Indian market and all of our India-focused strategies are positioned to benefit from positive developments in India such as the state election victory for the Narendra Modi administration. “The election outcome was a clear vote for economic development and better governance,” points out Atul Penkar, Head of Offshore Equities at Birla Sun Life Asset Management Company Limited and lead portfolio manager of the Excel India Fund. “[Among Indian equities], we continue to like domestic cyclicals – financials, infrastructure, industrials and consumer discretionary.” Mr. Penkar sees the political picture in India as stable following the elections, and believes this bodes well for future reforms and growth.
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1 Bloomberg, Modi Win Spurs Jump in Indian Stock Futures, Rupee Forwards, March 13, 2017.
2 Bloomberg, Modi’s Big State Vote Win Positions Him for Second Term, March 11, 2017.
3 Bloomberg data, total annualized return, in CAD terms, as at March 14, 2017.
4 Excel Investment Counsel Inc. data, as at February 28, 2017.
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The information contained in this article is for informational and illustrative purposes only and is not intended to provide specific financial, investment, or other advice to you, and should not be acted or relied upon in that regard without seeking the advice of a professional. Particular investments or trading strategies should be evaluated relative to each individual.