Manish Gunwani is chief investment officer for equities at Nippon Life India Asset Management (Nippon), which is responsible for multiple strategies focused on investment opportunities within the country, providing products for the domestic retail market alongside family offices in Europe and the Middle East, and institutional investors internationally.
Overall, Mr Gunwani’s department is responsible for approximately $12 billion in actively managed equity strategies, with all its offerings managed in-house. The firm also has a wide range of debt, gold, and liquid funds.
India is expected to be the fastest growing economy next year as markets recover from the severe effects of the pandemic, despite the rising deaths from its second wave of Coronavirus cases, with Bloomberg’s average estimates revealing a predicted 10 percent plus growth next year. This follows multiple successive years of sluggish growth alongside the sustained effects of lockdowns.
Meanwhile, prime minister Narenda Modi has committed the country to an extensive economic stimulus package. The budget, announced in Feruary, defies the tight-spending fiscal conservatism that has dictated Modi’s policies since he took office. This includes a significant expansion of the fiscal deficit, such as a 26 percent year on year increase in government spending, and an ambitious infrastructure spending plan on roads and railways.
The announcements suggest that, following the difficulties it has suffered when it comes to containing the second wave of Covid-19 cases within its borders, India could transform its macroeconomic conditions and provide investors with exciting opportunities within the equities space during the recovery period of the pandemic.
Fundeye asked Nippon’s chief investment officer about the firm’s selection process, and which funds and asset classes within India would provide investors with the best opportunities during the country’s recovery period. He also provided his views on whether India could compete with China for investors, and what developments people should be covering away from the main news cycle.
Q: Which types of investment products is your firm attracted to?
Our department is mainly focused on equity investments in the Indian stock market. The products diversity range from Broad based strategies like a Multi Cap fund to sector specific ones like a Pharma Fund.
Q: How optimistic are you about the performance of equities during the Covid recovery period?
The second wave of Covid has been pretty intense in India and hence it has impacted the economy for last two months quite adversely - however we do expect the economy for recover strongly after this wave in next two to three months because of pent up demand, strong global economy and a robust balance sheet of the household sector.
Q: When it comes to asset classes and sectors of the economy, where do you think investors should be looking for investment opportunities in 2021?
With Indian equities we believe from here the mid/small-cap segment is likely to do better in the next year.
Q: How much can investors benefit from the economic recovery period following the pandemic?
It is very difficult to predict the length and intensity of business cycles. Our base case is that the Indian economy is poised for an upcycle due to multiple factors – the low base of last three to four years in which the economy was tepid, pent up demand of the Covid phase, well capitalized and healthy banking sector, strong global economy, robust balance sheet of household sector and the private sector coming out of many years of low corporate earnings growth. The confluence of these should drive up economic growth in next two to three months, and investors can use Indian equities to benefit from this growth.
Q: What sort of strategies should investors be divesting from/avoiding in the current marketplace?
We expect that in the Indian equity market any strategy focussed on very defensive models (sectors like FMCG, pharma etc) does not present a good risk reward proposition.
Q: What is your outlook on India’s economic position - and where do you think the opportunities will be domestically?
India is in a period of sound macro stability though growth has disappointed a bit in last three to four years. On macro parameters like inflation, current account deficit, health of the banking sector, competitiveness of currency etc. the country is positioned well. Fiscal deficit is cyclically high due to Covid but expected to come down gradually. The country is likely to be big beneficiary of shift of manufacturing away from China as on issues like labour costs, domestic market size, skilled manpower etc. it offers a strong proposition and in sectors like chemicals, electronic manufacturing etc. we are seeing this play out.
Q: Can India compete with China to attract investors?
We definitely think that the size of Indian domestic market, its potential to grow for many years given the low base, improving infrastructure, fairly strong corporate governance standards, size of the educated workforce - all these are a powerful mix for global investors. It’s also getting the benefit of China+ 1 strategy being followed by many corporates for their supply chains.
Q: What do you think investors are not talking about/focusing on that they should be?
Most of us are influenced by recent times and one of the things to remember is that for almost 10 years India has grown below its potential - on parameters like passenger vehicle sales, bank credit, industrial production etc. It is possible that the upcycle could surprise us all in duration and intensity if all reversion to mean were to play out.
Mr Gunwani was interviewed as part of Fundeye’s series on SharingAlpha’s leading fund selectors and managers. Nippon is connected to the investment platform, with both its UCITS India Equity fund and its UCITS India Fixed Income funds available through the service.