China offers insights into the Indian market, says Sanjiv Duggal, the lead manager of HSBC Indian Equity. "India is one of the biggest economies in the world, and they're following a very similar group pattern -- though India lags China by 10 to 15 years," the Singapore-based Duggal says. He says that while "China is now starting to age, India's got a big, young population."
Duggal, 46, is investments director at Halbis Capital Management (Singapore) Ltd. He has managed the Indian equity mandate since its inception in October 2009. He is one of a team of three managers and one analyst who are responsible for about $5 billion in total assets under management, mostly in Indian equities.
Making macroeconomic calls is a key element of the team's investment strategy. "We're looking to add about 50% of value from sector selection," Duggal says. Two-thirds of the Indian economy is driven by consumption, he says, so the team's macro investment themes are largely driven by demographics.
One of the fund's top holdings, Maruti Suzuki India Ltd., a subsidiary of Suzuki Motor Corp. of Japan, illustrates the play on consumption, especially discretionary consumption. "Maruti Suzuki has over 50% of the market share in India for cars," says Duggal. "They're a cash-rich company and have a very extensive distribution network over most of India, which is a competitive advantage."
Fitting into the same demographic theme are companies that are active in residential real estate. These firms, says Duggal, will benefit from "a big, young population, a move toward urbanization, and rising per-capita income, growing at 10% per annum."
Infrastructure, an area where Duggal says India is lagging, is another investment theme. "There needs to be a lot more investment into things like roads, and we're starting to see that pick up again."
Duggal's Indian equity mandate typically holds 50 to 60 stocks, with no individual stock holding representing more than 10% of the overall fund. Employing a blend of growth and value disciplines, the firm invests primarily in larger-capitalization stocks, limiting its exposure to mid-cap companies to 12.5% of the portfolio. Duggal's favoured market benchmark for the fund is the S&P/IFCI Index because, he says, it's broader and more diversified.
The fund will tend to be fully invested, though the cash reserve might go up to 10% if the markets are more volatile, he says. Based on Duggal's experience with an Indian mandate launched in Luxembourg 14 years ago, the average portfolio turnover should be roughly 35% to 40%.
Duggal brings to his money-manager role a background in accounting. After taking a one-year foundation course in accountancy in the United Kingdom, he spent four years articling for an accounting firm. He received his designation as a chartered accountant in 1988.
In 1991, he joined an asset-management firm as an internal auditor. He was promoted to fund manager three years later, and joined the emerging-markets team. In April 1996, he joined HSBC in London. He moved to Mumbai in 2002, and then to Singapore in August 2005. Born in India, Duggal enjoys being involved in his country of origin "at this exciting time."
Over the next 10 years, Duggal says that India should grow at 7% to 10% on average. He and his colleagues think the returns on the Indian stock market will be 13% to 15% annually, as measured in U.S. dollars.
Duggal hasn't always been so bullish. "We believe that if we don't understand the market, if it doesn't make sense, then take some money off the table," he says. "In December 2007, we went public, telling people that they should exit Indian equity. In March 2009, we came out again on Bloomberg telling people it was a great opportunity to now come back."
Duggal acknowledges that the market volatility "can be quite tremendous," so they never tell people to come in from a short-term perspective. He personally invested in the firm's Indian mandate 12 years ago when his daughter was born and has yet to sell. "So I've got an 18- to 21-year view. That's long term."