How Aussies Could Do ‘A Buffett’ in India

Australia’s census revealed stronger ties to India, a country that one expert says offers the kind of investment that has built a legend.

That latest (2021) Aussie count is a beautiful thing.

Rich in change and vibrant in color, it’s a sure sign of strength as a nation, that’s also an island, which is actually a continent somewhere deep in the South Pacific, now home to a bunch of dudes and Sheila’s half of who they all have a parent born somewhere else.

And for the first time, India has overtaken China and New Zealand to become the third largest home country, behind Australia itself and England itself.

But what do we know about this nation that is more ours than ever before?

Is it all cricket, Bollywood blockbusters, Anita Desai and Vikram Seth?

And what about investing in India or even what’s in Indian stocks in the year of our falling house prices, 2022?

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Fortunately, here in Australia, the twin qualities of ignorance and curiosity are both part of the national identity, and at Stockhead we have them both in abundance.

We decided to take advantage of the knowledge of the legend, director and founder of India Avenue Investment Management, Mugunthan Siva.

Mugunthan led the ship in India as CIO of a boutique asset management firm, where he set up a foreign gateway vehicle to keep global investors an eye on Indian markets, an ear of Mugunthan’s knowledge and a portfolio of undiscovered Indian stocks.

In a previous life, he was the head of portfolio management for ANZ Wealth in Australia and his 20 years experience in portfolio construction, manager selection and credit and equity research with companies such as Macquarie Bank and Westpac. This all comes in handy when managing the multi-asset, alternative and global/emerging market portfolios he manages today.

Here’s what Mugunthan has to say:

“Typically, companies that continue to win over time operate in a growth industry and have market leadership qualities.

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“This will lead to strong and sustainable earnings growth as the industry moves through an S-curve (where all participants can grow) before maturing and growing at a more stabilized pace (when only market leaders continue to grow).

“Given India’s demographics, which include the largest and youngest population in the world, with an average age of 29, a reform-minded, business-oriented government, and rapidly improving infrastructure, there are several companies emerging as composite growth stories that buy and hold long-term investments.

“You could say that these companies are akin to the kind of purchases Warren Buffett made in the US during the post-war industrial revolution. The Apples, Coca-Colas and the Bank of Americas…

“Looking ahead, Indian equities offer a similar appeal given the following characteristics:

  • Large, young and consuming population with rising income (because population growth levels off and productivity rises)
  • A reform-driven environment increasing asset financialization, transaction digitization and business formalization
  • Increasing excellence in manufacturing and exports driven by incentives and the theme of China +1
  • A broadening of the tax base driven by the introduction of the GST in 2017

“These kinds of opportunities in a country as large, diverse and ambitious as India are countless at the moment. So here are just three Indian names you need to get to know, which we’re keeping a close eye on on India Avenue:

“Info Edge (India) is India’s premier pure-play internet company founded in 1995 and also operates an online job portal (Naukri.com), a wedding website (Jeevansathi.com), real estate classifieds (99Acres.com) as a workplace discovery platform and education website.

“The company also has a minority stake in more than 20 online businesses, including two former fantastic unicorns (food delivery giant Zomato and insurance aggregator Policybazaar).

In 2020, the company established a venture capital fund (Info Edge Venture Fund) to invest in online startup companies.

“With India’s internet penetration soaring (50%) and smartphone users now making up more than 66% of the population, the platform for increasing digitization is well in place.

“In addition, India has the lowest data costs in the world, providing access to a much wider population at a low cost.

Info Edge

“As one of the few profitable pure-play Internet companies in the country, Info Edge is India’s forward-thinking online advertising company. The growing digital player has the potential to occupy a leading market position and capture a huge chunk of the increasing online adoption pie.

“It is building a strong platform for organic growth through its online operations and to create and unlock value in potential unicorns. India is already in the top three regions for unicorns.

“In addition, management has shown clear capabilities to invest successfully and build online brands organically. EBITDA margins are over 30% and the company showed double-digit earnings growth in the lead-up to Covid-19 (in FY21).

“The recent sell-off of Internet-related stocks, rising costs of capital and lower valuations in the future for Internet-related companies and holding structures present a great long-term opportunity in a company with several long-term underlying fundamentals. in his advantage.

Bajaj Finance

“Bajaj Finance is a non-banking financial company with nine product lines for consumer, commercial and small and medium-sized business finance. The company has been around for more than 30 years and provides financing to nearly 40 million customers. It is present in nearly 2000 locations, with a distribution network of more than 100,000.

“India’s rising GDP per capital will lead to an ever-increasing borrowing requirement.

India’s gross savings rate is close to 28% which is significant.

“In the past decade, India’s banking penetration has soared to nearly 80%, driven by the introduction of the Aadhaar Card (National Identity Card) and a program aimed at opening bank accounts in 2015.

“As banking/finance penetration has increased, Bajaj Finance has done well by focusing on the affluent mass customers, with a cross-sell strategy. The company’s strengths include key distribution and customer analytics, which help it respond to customer needs through innovation and customer service. Even during the period hit by COVID-19, the company’s earnings per share grew at 22% per year (2018-2022).

“While banks and NBFCs have struggled with corporate lending and the impact of the slowing growth pre-pandemic and then the impact of the pandemic, Bajaj Finance has been growing stronger thanks to strong management and an established moat.

Avenue Supermarts

“Avenue Supermarts operates a chain of hypermarkets that expresses its mission to research, identify and make available new products and categories that meet the needs of the Indian family. From the first store, established in 2002, the company now has 284 stores in 11 states and one territory in India.

“At this stage, most retail growth has occurred in clusters in predominantly urbanized locations (where the company becomes the expert in retail knowledge in the area), which is comparable to Walmart’s properties in the US.

“Formalization takes place at every level in India.

“Traditionally, retail activity has been highly dispersed, with a focus on convenience stores and convenience stores/markets. This is largely due to the legacy of purchases made with a focus on local proximity and meeting everyday needs.

“However, as the family structure changes and the convenience of bulk purchasing is sought, a shift is taking place. Today, the opportunities are immense, as unorganized retailing still accounts for about 75% of total retail sales.

“The company has grown at 20% per annum for the past four years and will continue to participate in formalization from a very low base.

“While the threat of e-commerce and competition remains high, it is likely that the retail market will grow significantly over the next 10 years.

What now?

“Thus, the above three companies cannot be bought by an Australian investor without a foreign portfolio investor license.

“While these licenses are possible, it is a cumbersome, painful and grueling exercise for investors seeking exposure to India’s growth story.

“However, there are several privately held funds based in Australia that offer exposure to the above companies.

“Investing in an Indian fund can be viewed as a ‘growth stock’ in one’s portfolios, given the compound nature of the earnings growth that can be achieved given the macro and micro fundamentals at play in the country.

“India Avenue has always focused on education and knowledge as a driver of investment behavior and has taken a long-term approach towards Australian and New Zealand investors considering an allocation to India’s growth as part of their portfolios.

“Knowledge and insight are what you want as investors in Australia or New Zealand eager to explore India’s structural growth story and take advantage of it as an investment portfolio allocation.”

This content first appeared on stockhead.com.au

At Stockhead, we tell it like it is. Although we are great admirers of Bajaj Finance, Info Edge and India Avenue, they did not sponsor this article.

Stockhead has not provided, endorsed or otherwise assumed any responsibility for financial product advice in this article.

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Originally published as Stockhead: Expert touts Buffett-esque opportunities for Aussies in India

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