As U.S. markets sink lower, money managers are busy capitalizing on India's booming economy.
As U.S. markets sink lower, money managers are busy capitalizing on India's booming economy.
WisdomTree Investments Inc. of New York listed the first India-only exchange traded fund on the NYSE Arca last month. Chicago-based PowerShares Capital Management LLC has begun trading an India-only ETF on the New York Stock Exchange. And officials at Franklin Templeton Investments Inc. in San Mateo, Calif., launched a new mutual fund that gives U.S. institutional investors access to Indian equity markets.
Two consulting firms — Mercer LLC, a unit of Marsh & McLennan Cos. Inc. of New York, and Chicago-based Ennis Knupp & Associates — also opened offices in India last month to help expand their manager research efforts there.
"India is breaking away from the [Brazil, Russia, India, China] pack," said Richard Nuzum, business leader for the Americas for Mercer's investment-consulting practice.
"You have this huge labor force that is well-educated, young and hardworking, and what they need to succeed is capital," he said.
In 2006 and 2007, India's gross domestic product grew 9.2% and 8.5%, respectively. And based on purchasing power parity, the country's GDP grew to approximately $3 trillion at the end of 2007, or 7% of the world's total output, according to data provided by PowerShares.
Amid the downturn in the U.S. markets following the credit crunch and fears of a recession, pitching non-U.S. equities is now an easier sell for managers, Mr. Nuzum said.
Currently, non-Indian institutional investors must register with the Securities and Exchange Board of India and generally are restricted on how much they can own of any particular security. To work around that, many registered investors issue participatory notes, or derivatives based on underlying Indian stocks, to non-registered investors. As a result, the true ownership of Indian securities has become opaque, which doesn't sit well with Indian regulators, said Benjamin Fulton, executive vice president of global product development at PowerShares.
In October, the SEBI said that it would clamp down on the use of such notes. "The products haven't been shut down, but they're not as advantageous as they were before," Mr. Fulton said.
The PowerShares India Portfolio will track the performance of the Indus India Index, which is compiled by Indus Advisors LLC and provides direct exposure to Indian equities.
CLIENT DEMAND
For officials at Franklin Templeton, the new fund was a result of client demand, specifically endowments and foundations looking to overweight India relative to the Morgan Stanley Capital International Emerging Markets Index, said Stephen Dover, chief investment officer for Franklin's local asset management group.
The fund is available to both retail and institutional investors.
In the past 18 months, foundations and endowments have moved beyond emerging-markets exposure and want India-specific funds, he said. The firm ran $265.73 million in Indian-equity strategies for U.S. investors through separate accounts as of Dec. 31, up from $89 million at the end of March 2007.
The separate accounts were established at the request of clients but proved to be costly and cumbersome to set up, Mr. Dover said. But the $1 million needed to invest in the new mutual fund will be more palatable.
