How India helped this fundie return 52% last year

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And lately, returns have been good: Siva’s flagship fund, the India Avenue Equity Fund, returned 51.90% in 2021, and the team just completed a $9 million fundraising round for its second fund. , the India 2030 Fund, which will hold between 15 and 20 high-conviction stocks.

It also doesn’t hurt that some major macroeconomic themes have prompted global investors to start looking at India, to dig deeper into the country’s opportunities that lie beneath the population of 1.4 billion.

One of the biggest is the unease surrounding China, Siva says, where the cost of labor has skyrocketed and there is uncertainty about how the Chinese Communist Party will deal with foreign companies and workers. global expansion.

“Everybody is trying to diversify the global supply chain away from China and maybe downplay that country,” Siva said.

An eye for India

As such, the Indian authorities have stepped in, putting in place incentives for foreign companies seeking to manufacture or do business in the country, and significantly reducing the corporate tax rate.

Siva’s love affair with India began after a career in retirement. Fleeing growing religious unrest in Sri Lanka in the 1960s, Siva’s parents bounced around Singapore, Nigeria and London before landing in Australia when Siva was 10.

Almost thanks to Michael Douglas, he began a career in finance where he worked for some of Australia’s largest pension funds including ING.

It was in 2005 when the Dutch giant came to him and offered to start an asset management business in India.

“It wasn’t racial profiling or anything, they just knew most people wanted to go to London or New York, but I was happy to go to Mumbai,” he says.

Siva wrapped up his family and for three years he built the Indian asset management business of ING, along with three other men who eventually became his co-founders.

“I came back to Australia, but the Indian opportunity was always on my mind,” he says, adding that the Chinese economic model was already in motion despite obstacles for Western investors, such as language and political system. opaque.

After four years, the original four founders took the leap and put $350,000 of their own money into a pre-fund to start investing in India.

It was 2014, and Narendra Modi had just won the election, promising a pro-growth, pro-reform era that had investors around the world salivating.

This included the family office behind Queensland Yoghurt, a global dairy company that was listed on the New York Stock Exchange and which, after a meeting with Siva where everyone wore swim shorts, ended up pouring $1 million into the new fund.

Siva then used LinkedIn to reach out to Allan Moss, the former chief executive of Macquarie Bank, who, to Siva’s surprise, also poured in the money.

Focus on India criticized

In 2016 the fund was launched, and while the Indian growth story is attractive, Siva remembers a lot of backlash from other asset managers who criticized the strategy of focusing only on India.

“Most people want exposure to all emerging markets, right?” he says. “But people were always selling out of India when things were going pear-shaped and wanted to buy when things were going well. We knew we had to educate people.

Siva says that for years the middleman has been the winner of India’s economic growth, and any company that cut the ticket or added to Indian bureaucracy made money.

But the India Avenue fund began snapping up consumer stocks, riding the wave of gentrification as Indians moved from poverty to middle class. The fund also focused on financial services companies as the “save at all costs” mentality gave way to credit appreciation.

As many emerging market investors rally around the 10 largest stocks in India, Siva has spent the past six years exploring emerging opportunities that fit with rapidly growing demographic trends.

One such purchase is the Indian Energy Exchange, a platform that facilitates electricity trading in a country with a high proportion of energy waste. Since the company’s IPO in 2017 (India Avenue purchased in 2018), the company has cornered 99% of a huge energy trading market and captured the attention of global investors.

Siva and his co-founders still own around 50% of the fund, and thanks to several profitable years, they don’t have to dilute the business any further.

But eventually, investors in the first fund started asking for something more concentrated. The Indian story was clear and Siva’s team had shown that they knew what they were talking about, but they wanted a higher fund of conviction on three or four themes.

And so, in the second half of 2021, the India 2030 Fund was born. It seeks to invest in digitalization, energy intensity, urban consumption, manufacturing and exports.

India’s changing demographics present investors like Siva with buying opportunities as companies begin to provide people with the same smartphones, computers, apps and lifestyles as Western countries.

Currently, only 8% of food in India is consumed outside the home. But as more and more women join the workforce, demand for restaurants, takeout and delivery grows.

As such, companies like Zomato enjoy huge growth avenue and investors like Siva will aim to capitalize on this growth.

Data is also particularly cheap in India, with each gigabyte costing around 9¢. This means businesses, including courier service Reddington, can compete globally with far lower overhead than their peers.

Combine low data costs with cheap labor, and Siva tells the story of an Indian engineering company booking a margin of over 20%, while its closest competitor managed 8%.

While COVID-19 has dampened much of global trade, it has also highlighted the risks deep within supply chains, particularly in pharmaceuticals, says Siva, another theme the new fund is targeting. to develop.

India’s growth potential has often appealed to investors, but there are still underlying macroeconomic risks that Siva is all too aware of.

The first is rising oil prices. As a net oil importer, India is exposed to oil price volatility and its transition to a renewable economy is very slow. The other is rising interest rates.

COVID-19 has finally pushed Indian interest rates low enough to kick-start business expansion, and Siva says they need to stay low longer to ensure micro and medium enterprises will still have access to cheap capital .

“The ideal environment for India is that the rest of the world is recovering but we don’t have much inflation because that means interest rates will go up everywhere,” says Siva.

“And in India, rising interest rates will hold back the economy because of this access to capital.”

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