Mark Dampier: India's youth will mean a surge in growth

The Analyst

A decade ago regional emerging markets funds were few and far between, and not many people would have considered buying those on offer. Yet today there is strong demand for individual country funds covering Russia, Brazil, China or India.

India always seems to be in the shadow of China. China has become absolutely integral to the global economy within a relatively short space of time, but India is the more interesting story in my view. It may be some way behind in its development but it is catching up, and despite a complicated bureaucracy it is a democratic country and a truly capitalist economy.

India and China are also very different markets. Over the last few years China has been reliant on its export sector, while India only exports about 15% of what it produces. So it is largely a domestic story, and one that looks very strong over the long term. India's population is 1.3 billion, of which 49% are below the age of 25. This is a huge demographic advantage over China and the West, which are facing ageing populations. It could make India far more dynamic over the next couple of decades, with 178 million individuals joining the workforce, giving rise to additional domestic demand.

So where should investors look for exposure? Jupiter is a fund management group that often attracts high-calibre managers and the Jupiter India Fund managed by Avinash Vazirani is a prime example. He has 15 years' experience of investing in India, having joined Jupiter in 2007. I found my recent meeting with him fascinating, and he made a couple of really important points. First, that Indian shares are often dismissed for being too expensive relative to other emerging markets, but this view ignored the tremendous earnings growth that is coming through. In his view analysts are some way behind what is actually happening on the ground to company prospects, which often accelerate rapidly. One example is Hero Honda, which is now selling half a million motorcycles every month. Only five years ago it would sell this amount each year.

Secondly, the introduction of biometric ID cards entitling people to receive benefits should bring about large savings, as the Indian authorities can pinpoint areas of need and avoid wasting money. The government realises it needs to do more to close the gap between rich and poor, and they are increasing rural wages from 30 to 40 rupees a day to 100 rupees. This extra money is creating demand for discretionary items rather than food, increasing the sales of various local businesses. Unlike China, the India story is not solely about the urban areas but the rural areas too. New railway lines and roads mean these people can more easily travel around to spend their money.

There is a growing sense of entitlement in India. People are demanding more and politicians are providing it. However, the government realises it can't do it all themselves. Just look what happened at the Commonwealth Games. It is the private sector that is filling the gaps: 99% of all new highways are built by the private sector, as was the new international airport in Delhi, the third largest in the world and constructed in only 33 months.

Avinash believes the potential for growth for the next 15 years is better than the last 15, and with a new generation of entrepreneurs coming through who are more motivated than ever, the prospects are bright.

Avinash believes his fund is positioned fairly cautiously relative to the market as a whole. His strategy is to try and capture as much of the upside in the market as possible, but at a lower risk than other funds. He seldom trades the portfolio, tending to buy his strongest conviction ideas for the long term. The focus is firmly on good-quality businesses with strong management and strong earnings growth. If you are looking for a long-term growth story I think India fits the bill and Jupiter India is an ideal way to gain exposure.

Mark Dampier is head of research at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more details about the funds included in this column, visit www.h-l.co.uk/independent