Clinching two wins under the Central Provident Fund (CPF) category at the Best Funds Award 2024 by The Edge Singapore, PineBridge Investments has shown outstanding performance for its PineBridge India Equity A5CP and PineBridge US Large Cap Research Enhanced A5CP, based on data by Morningstar.
India, in particular, has stood out as a growth story not to be missed. Robust corporate earnings, local credit growth, and positive high-frequency indicators, along with sound monetary policy and broad-based recovery in sectors from financials to autos to fast-moving consumer goods, have all provided macro stability and a compelling investment landscape.
PineBridge’s head of India equities, Huzaifa Husain (pictured), discusses his investment philosophy and the opportunities he sees in this dynamic economy.
He says: “From India’s vast universe of more than 5,000 stocks, our fund is relatively concentrated, currently containing approximately 50 stocks, all carefully selected using our rigorous bottom-up, fundamental research-driven investment process. We seek to deliver alpha and capture market opportunities by identifying the dynamic evolution of industries and companies that tends to occur over the longer run and is often missed by the market.”
Photo: PineBridge
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This conviction comes from being one of the first managers to have an on-the-ground presence in India. For two decades, the team has navigated the unique Indian investment landscape, garnering local insights and identifying opportunities firsthand. Incepted in 2005, PineBridge India Equity Fund is also one of the earliest funds of the same category available in the market. “In such a large market, we believe there are lots of undiscovered mispriced opportunities. Therefore, active management and stock selectivity are key,” explains Husain.
He continues: “We identify alpha opportunities through our engagements with more than 200 focused companies across India every year. Through constant dialogues with these companies, we gain in-depth insights about their businesses and ensure a development of trust, which results in favourable outcomes during the engagement.”
Making the process count
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PineBridge India Equity Fund has demonstrated both near- and long-term outperformance.
The fund outperformed its benchmark (Morningstar India TME GR USD) in 2023, over the 10-year period and since its inception, according to Morningstar as of March 31. It was also ranked in the first quartile among peers in the EAA Fund India Equity category over 10 years.
Taking an all-cap, benchmark-agnostic approach has allowed the team to capture the best investment opportunities across the entire market capitalisation range, without confining itself to a style bias.
For example, assuming an investor made an investment of US$100 in the fund at inception in 2005, it would have grown to US$800 as at March 31, 2024. “Ours is one of the few funds that has generated as much as an eight times return since 2005, among many open-ended equity funds across geographies and sectors,” Husain highlights.
Moving forward, the PineBridge team continues to believe that Indian equities’ dumbbell-shaped valuations create large pockets of opportunity, as companies trading at very high multiples skew the average price earnings multiples higher.
“Our focus remains on discovering long-term opportunities with robust and sustainable business models, governed by an efficient and visionary leadership, and available at reasonable price. This focus on bottom-up stock picking has not changed since the inception of the strategy,” he adds.
The firm also considers environmental, social and governance (ESG) factors when selecting stocks.
With an objective to manage the transition and keep pace with clients and regulatory developments from an ESG perspective, the firm has had dedicated resources in India to keep track of global and local developments in ESG.
“Active stewardship allows us to participate in the decision-making of holding companies, as a way to help our companies grow stronger, by sharing our deep knowledge and experience, as well as to manage risks,” says Husain.
India’s appeal
India’s global growth story has been impressive and swift. A decade ago, it was the ninth largest economy globally. The latest calculations from the International Monetary Fund (IMF) revealed it has climbed to become the fifth largest, behind the US, China, Germany and Japan.
Amid the unprecedented global events and ongoing geopolitical disturbances, India — which hosts one-fifth of the world’s population — is seeing various significant developments that inject dynamism and resilience into its economy, according to Husain.
For one, the country’s financial sector continues to be an important pillar for stability and growth prospects. The assets of domestic banks, for instance, have improved, with non-performing loans falling amid growing credit to the private sector, both contributing to robust balance sheets.
India also stands to benefit from efforts to restructure global supply chains to be more resilient to shocks.
Other golden opportunities for India stem from rapid technological adoption and energy transition. The former has resulted in the lower cost of access between companies and customers, plus greater business productivity. For the latter, the Indian government has been undertaking initiatives to tackle uncertainties around energy prices by investing heavily in renewables and pursuing an aggressive energy transformation agenda that includes solar energy and green hydrogen.
Meanwhile, the low interest rate environment, coupled with the ease of investing in the stock markets, is deepening the equity investment culture in India. This provides much-needed risk capital for companies to continue innovation in terms of both products and services.
“Investor demand has been a key driver, including a rapidly growing domestic retail investor base,” says Husain. “These investors typically use Systematic Investment Plans, which allocate a fixed amount to a mutual fund scheme at fixed intervals. This means investors are participating in the capital markets regularly. In addition, India has seen sustained inflows from foreign institutional investors.”
There are also other positive drivers for India’s equity markets. For instance, an outstanding reputation as a significant player in IT services outsourcing continues to add to its long-term appeal as a destination to diversify supply chain operations.
The country also offers a viable alternative for outsourcing compared with other emerging nations, particularly as a scalable manufacturing location with a relatively stable political leadership. This has allowed the country to lure fresh capital from the US and European companies pursuing near-shoring (where companies relocate their business operations to a nearby country) and “friend-shoring” (where companies manufacture in and source from a country allied with their own country) strategies.
India’s other core industries, including steel, cement, electricity, gasoline and diesel, are showing robust growth. Furthermore, its burgeoning consumer market is expected to be a powerful driver of growth in the coming years.
According to Barclays, the aggregate discretionary consumption in India is expected to triple to US$2 trillion ($2.7 trillion) by 2030 (as reported by The Economic Times on Jan 24). With strong foreign portfolio flows, the country’s businesses are able to raise equity in high valuations, in turn creating a more reliable capital-raising environment.
Husain adds: “We believe there are a lot of undiscovered opportunities in India which are neither a part of the main indices nor covered by sell-side research. These names, if researched well, can provide a huge source of alpha.”
Long-term story
On April 16, the IMF raised India’s growth forecast for 2024 to 2025 to 6.8%, from 6.5% previously, on the back of strong domestic demand and a rising working-age population.
“We are aware that macro trends can change the dynamics of growth across different parts of the economy. We monitor high-frequency data to see where the growth is accelerating or decelerating, and may adjust the positioning of cyclical names and defensive names, based on bottom-up stock selection decisions,” says Husain.
He adds that India is still under-represented in the MSCI Emerging Markets Index, relative to its GDP. To this end, the team thinks there are still pockets of value within large caps such as in financials, healthcare and technology, emphasising that investors could benefit from increased exposure to the country.
“Ultimately, India is a long-term story, and within such a dynamic economy, we believe capturing the most compelling opportunities requires a thoughtful investment framework that encompasses robust fundamental, bottom-up research that looks beyond index weights, as well as local knowledge, solid experience and a proven track record,” explains Husain.
He adds: “In this way, investors can find the most attractive companies — those with solid business models, strong management and fair valuations, and which have the potential to deliver sustainable returns for investors over different market cycles, while remaining vigilant against potential risks.”
