Tap into India’s growth story with these three mid-cap stocks


A professional investor tells us where he’d put his money. This week: David Cornell of the India Capital Growth Fund picks three top-performing companies.

The British and Indian stockmarkets have much in common. The FTSE 100’s constituents make most of their sales abroad, while the same applies to India’s big-caps in the BSE Sensex 30. The index does not accurately reflect the real state of the domestic economy, so investors seeking exposure to India often find they have unwittingly bought into broader global trends rather than local spice.
As in the UK, the area of the listed market that best reflects the performance and prospects of the local economy is the small and mid-cap segment. This is the engine room of both economies, though in India’s case overall GDP growth is nearer 8% than the UK’s 2%. Over the last 15 years, India’s mid-cap equity index has averaged impressive annual returns of 12.3% in US dollars, around four times more than the FTSE All-Share.
For UK-based investors, however, getting hold of single stocks in India can be a highly bureaucratic process. Buying an Indian equities fund is easier, especially if the assets are held in a closed-ended structure. This ensures the manager’s investment strategy will not be affected by fund flows, which can unsettle the portfolio, and also allows investors to take advantage of the fact that the share price often trades at a discount to the trust’s net asset value (NAV – the value of the underlying portfolio).
Cashing in on credit cards
Stock pickers have an array of entrepreneurial management teams to choose from across a range of sectors. In the underpenetrated banking space, for example, we have invested in RBL Bank (Mumbai: RBK), which has a market capitalisation of $3bn. In 2010, Vishwavir Ahuja left Bank of America Merrill Lynch to take over a small local lender. Having improved processes and risk management, he floated RBL in 2016. It is expanding into the retail space, particularly with credit cards where it has grown market share for four years in a row.
Consumers hit the shops
Consumption is also a well-known theme in India In 2011, Jyothy Laboratories (Mumbai: JYL), whose market value is $1bn, acquired Henkel’s failing Indian subsidiary. This gave it a diversified product range including mosquito repellents, dish-washing and hand soaps, detergents, and deodorants. The integration of the purchase has been a success, leading to a 30% increase in earnings over five years, and leaving our investment well placed to capture future consumption growth.
A global car-parts supplier
India is the only emerging market that has companies that are globally competitive across a broad range of industries. Motherson Sumi Systems (Mumbai: MSS), with a $6bn market cap, is a case in point. If you reversed out of your driveway this morning there’s a one in four chance you used a rear-view mirror produced by them. The company supplies most global car makers, and its technical expertise extends to door panels, bumpers and wiring harnesses that connect the car’s computer system to the rest of the vehicle. The diversified product portfolio has helped the company deliver compounded net profit growth of 30% over five years.

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