Exposure To India Is Helping This Hedge Fund Reach All-Time Highs

With domestic markets contracting, American investors are turning to international assets, noting particular promise in India.

“You want to have strength in emerging markets, this is where the strength is,” J.C. Parets of All Star Charts said on Benzinga’s PreMarket Prep radio show. “Forget China, forget Brazil and Russia. India seems to be where it’s at.”

Mohnish Pabrai, who is outperforming the market with $535 million in assets under management, has already shifted a significant portion of his firm’s investments there.

“We also have the highest exposure we’ve ever had to companies based in India (over $100 million or over 18 percent of the pie),” he wrote in an investor note. “I love what we own in India. We’ll make a lot of hay from our Indian holdings in the years ahead.”

Technical Factors

Pointing to the nation’s growth, its internals and drivers, and the recent all-time highs hit by media companies, Parets said the opportunity lies beyond ETFs and individual stocks.

“I think it’s bigger than that,” he said. “I think it’s the fact that the rupee is breaking out of a monster base, the fact that the NIFTY is breaking out to all-time highs, and the fact that the NIFTY bank index is so highly correlated with NIFTY itself.”

The recent performance of the NIFTY 50 (NSE: NIFTY) and its continued achievement of new all-time highs is encouraging, but Parets warned that it won’t last in the short-term. Each new high coincides with a loss of components participating in upside momentum, indicating a potential failed breakout of the index. In an email, he said the evidence suggests waiting to enter the market until the index wanes a bit and the technical conditions reflect those of fall 2016.

Economic Factors

Richard Rossow, Wadhwani Chair in U.S. India Policy Studies at the Center for Strategic and International Studies, said greater economic factors are accommodating continued market growth.

“The Indian economy, while far more open to global markets than ten years back, remains relatively insulated,” Rossow said. “It is largely self-propelled, so its growth or deceleration is determined less by external forces than its own momentum.

“Prime Minister Narendra Modi has personally inspired a high degree of business confidence with his focus on executing important national goals like electrification and financial inclusion, while also initiating new reforms in areas like coal, railways and defense, that are helping open new opportunities to India’s private sector. In addition, his party, the BJP, has been winning recent state elections — underscoring the point that voters are inclined to support these pro-growth policies.”

The American Disadvantage

As Indian investment opportunities proliferate, American counterparts thin. Pabrai noted that his firm maintains about 65 percent of total AUM in non-U.S. assets — an all-time high for Pabrai Funds.

"In the last 12 months, I have made just one investment in the U.S. (NYSE:LUV)),” he said. “I don’t find the U.S. markets overvalued, but they aren’t obviously undervalued either. The pickings in the U.S. have been very slim. Lately we’ve just been buying a few thinly traded names in South Korea and India."

Since the beginning of 2017, the NIFTY has outperformed both the SPDR S&P 500 ETF Trust (NYSE:SPY) and SPDR Dow Jones Industrial Average ETF (NYSE:DIA), with each seeing respective increases of 12.6 percent, 6 percent and 4.9 percent.

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