India-focused funds gain favor

Indian equity funds have emerged as the unsung heroes in Korea’s financial circle as they managed to generate returns of 5 percent this year, according to data from market tracker FnGuide.

Given that funds linked with Korea’s stocks provide less than 1 percent yield, their performance stands apart.

If the time is stretched to three years, the average rate of return of Indian funds is a whopping 65 percent.

The gains stem from India’s robust economic growth as the country’s gross domestic product grew 7.9 percent in January to March from a year earlier.

The economic growth was the highest worldwide in the first quarter, beating out China. India’s stock markets also ride on the tailwind with the Sensex index touching upon this year’s record high on Sept. 8.

Compared to February, the index rose 30 percent, though it has been recently adjusted to the 28,000 level. Another boost was the government’s tax overhauls due to take effect next year.

Analysts believe that the overhaul will lift investor confidence and lead to more foreign direct investment.

“The reform will eliminate inefficiency and it could raise India’s GDP by 2 percent,” said Choi Jin-ho, a researcher at Mirae Asset Daewoo.

Morgan Stanley also said that the structural reform is viewed as one of the most far-reaching indirect tax reforms that the country will see and will attract more foreign investors.

Mark Mobius, executive chairman of Templeton Emerging Markets Group, said that he will increase weight in the shares of smaller Indian companies to profit from expansion in the world’s fastest-growing economy.

“If you factor in the reforms that are taking place and the impact they can have on company earnings, it tells us that India is on the cusp of an interesting opportunity,” Mobius said in an interview with Bloomberg.

It is worth noticing that Indian funds lost 1.5 billion won ($1.3 million) in the past three months.

Market watchers point out that investors may get cold feet based on fears that the India funds will follow the boom-and-bust pattern of emerging market funds in 2008.

Other skeptics say India’s current stock markets are overestimated.

DSP BlackRock Micro Cap Fund, an India-based fund company, decided to limit client inflows into India’s benchmark small-cap index due to what it perceives as excessive investment fever. “We are not comfortable with the current valuations, which is limiting our ability to build decent-sized positions,” said Vinit Sambre of the Micro Cap fund at DSP BlackRock. “Valuations discount much of the near-term positive developments.

Still, others see promise in India.

“In the long run, India is one of the most promising investment sites,” said Lee Jong-hoon of Samsung Asset Management.

BY KO RAN, PARK EUN-JEE [park.eunjee@joongang.co.kr]