Betting on pharma scrips and avoiding energy companies has helped the Mathews India Fund beat its peer group.
Sharat Shroff's Matthews India Fund performed better than peers during the biggest selloff in Indian equities in three decades by investing in healthcare and avoiding oil and gas stocks.
India's stock market dropped as much as 40 per cent from a high on January 8 before regaining ground in the past month. Interest rates reached a seven-year high, hindering economic growth. Inflation soared in the south Asian nation, which depends on imports for about 70 per cent of its energy needs, as oil prices rose 65 per cent in the past year.
“Steady growers in the healthcare and consumer staples space held up better,” amid the plunge in Indian shares, Shroff said in an interview from the San Francisco offices of Matthews International Capital Management. “We are not trying to call a bottom, as there could still be some pain to unfold.”
The $708 million fund fell 3.9 percent in the past year, compared with the average 19 per cent slump of the other three US-based funds that invest in India, Bloomberg data show. It also beat funds that invest in Asia, excluding Japan, which have fallen 13 per cent through August 6, according to Morningstar Inc. in Chicago. Matthews India has won with picks such as Sun Pharmaceutical Industries, which has gained 58 per cent.
The Matthews fund, started in November 2005, has a one-year Sharpe ratio of -0.26, compared with a -0.45 ratio for funds that invest in Asia outside of Japan, Morningstar said. A higher Sharpe ratio indicates better risk-adjusted returns.
“Matthews' overall expertise in Asia is comforting,” Morningstar analyst Bill Rocco said in an interview. The company manages $9 billion in Asian stocks. “Single-country funds are risky, but if you must own one, this is a good choice.”
Avoiding energy
Matthews India is co-managed by Shroff, 35, and Andrew Foster, 34. They have stayed away from energy stocks, saying that such companies are vulnerable to global price swings beyond their control.
About 4.7 per cent of the fund's assets are in energy companies, compared with an 18 per cent weighting in its benchmark Bombay Stock Exchange 100 Index. The managers held 13 per cent of assets in healthcare, compared with 4.2 per cent for its benchmark.
Apart from Matthews International, US managers of India-focused stock funds include Eaton Vance Corp. in Boston; New York-based JPMorgan Chase & Co.; and EM Capital Management LLC, which has offices in New Delhi, New York and Washington.
Franklin Resources Inc., the manager of the Franklin and Templeton in mutual funds, opened a mutual fund in February that is similar to product offered in Luxembourg.
Purav Jhaveri and Stephen Dover co-manage the Franklin India Growth Fund, which has gathered more than $50 million since its inception earlier this year. Inflation and political uncertainty will drag on Indian stocks for at least six months, Jhaveri said in an interview.
Confidence vote
Prime Minister Manmohan Singh's government averted a collapse by winning a confidence vote in July after Communist allies withdrew their backing. General elections will take place in May 2009. Still, this may be a good time to inch into some Indian stocks, he said.
“The froth has gone from the markets and though the short-term performance has been down, the long-term growth story is intact,” Jhaveri said in an interview from San Mateo, California.
India's central bank expects the economy to grow as much as 8.5 per cent in the current fiscal year, slower than the 9 per cent in the previous 12 months. India has posted 8.9 per cent average annual growth since 2005. The Bombay Stock Exchange’s Sensitive Index, or Sensex, surged 47 per cent last year, fueled by the second-fastest economic growth rate among major Asian economies after China.
Pharma saviours
Sun Pharmaceutical, India’s biggest drug maker by market value, was the Matthews fund's largest holding as of June 30. Glenmark Pharmaceuticals, the fund's third-biggest stock, has almost doubled in the past year. Profits at the companies, both based in Mumbai, were driven by higher sales of generic drugs.
The fund's No. 2 holding is Infosys Technologies, India's second-largest software-services provider. Bangalore-based Infosys has declined 8.1 percent on slowing demand from U.S. customers.
The author is a Bloomberg News columnist. The opinions expressed are her own.
