In 2001 Goldman Sachs Jim ONeill coined the
acronym BRIC for the four emerging economies of Brazil, Russia,
India and China. He argued that the BRIC countries were poised
for a takeoff, uncoupled from the performance of the developed
The uncoupling is over as the developed economies
have faltered lately, so have the BRICs.
Now, with weak demand from the developed economies, slow
domestic growth and spiraling inflation, many are writing off
the BRICs. The contrarian BRIC is India. Its inflation has
leveled off. Domestic demand continues to grow. And its
dependence on foreign demand has lessened. Thats great
news for investors in India.
An example: For investors in Alchemy Long Term, a small
equity fund being managed out of Mumbai, 2012 has been
Alchemys Offshore Equity Fund, to date, is up about 34
percent, compared to the 22 percent growth recorded by the
benchmark BSE500 index. And it has beaten the Dow Jones
Industrial Average, which is up to 13245 from 12218 on December
Alchemy is betting on management teams that continue
to grow their companies. They see this tough environment as an
opportunity to build, not just stay put, says Hiren Ved.
They see this environment more as an opportunity, than a
constraint, says Hiren Ved, chief investment officer of
Alchemy Investment Management, which manages Alchemy Long Term
and a number of other India-specific funds. And they all are
focusing on tapping domestic demand.
Alchemy is an investor in Bajaj Finance, a company that
continues to grow revenues providing loans for the purchase of
consumer and home appliances and two-wheelers such as scooters
(cars and vans are too expensive). Another company in its
portfolio is Titan Industries, an operator of stores that sell
watches and jewelry. They continue to roll out new stores
aggressively and are well positioned to increase market share
when the economy really rebounds, says Ved.
Infrastructure companies that contribute to sustainable
long-term growth power generation companies,
construction equipment, infrastructure financing are
also on Alchemys list of preferred investments. For
sustainable growth and for consumer spending to continue
growing, India needs to move forward aggressively with
developing the countrys infrastructure. But India also
needs to be cautious, says Ved, making sure that infrastructure
development is in keeping with the needs and capabilities of
its complex and politically fragile regional
What makes India stand out, according to Ved, is that it has
already undergone a meaningful correction since November 2010.
Indias investment climate is more transparent and
disclosure-oriented than ever. And investors are rewarding
companies that are true business-builders, instead of those
that continue to live by financial engineering.
The country also has gone through a significant change in
the reporting of finance and economics, India watchers say. Not
only are regulators cracking down on insider trading and the
failure to disclose financials, the financial press has been
more aggressive in reporting financial news and misdeeds.
We have moved from Kalyug (the age of downfall) to
Satyug (the age of truth), says Ved.
Transparency and increased disclosure have been major
factors in the economic transformation that India is
experiencing, says Karthik Balakrishnan managing director of
Globescape Capital, a Washington DC investment advisory firm.
Not only have Indian regulators such as SEBI become more
aggressive in the information it requires of the various
players, the existing laws are being enforced more
This month regulators barred technology entrepreneur Arun
Jain from the stock market for two years, charging him with
trading on insider information. Jain, the founder of Polaris
Financial Technology, had traded in his companys stock on
the basis of failed transaction before its public
In September the nations highest court ordered Subrata
Roy, one of Indias most high-profile businessmen and the
founder of Sahara Group, a 123-company conglomerate, to return
Rs 17,400 crores (about $3.8 billion) to depositors, together
with 15 percent interest, because the funds had been raised
without proper disclosure and regulatory approval.
Confidence in the markets has brought in a steady stream of
global private equity investors such as Accel Partners and the
Carlyle Group. The presence of foreign private equity has
contributed to greater accountability and improved corporate
governance, says David Wilton, chief investment officer of the
International Finance Corp., the World Banks
What also makes India so attractive now is that India has
the most diversified economy of all BRIC nations, says Pablo
Goldberg, head of emerging-markets research at HSBC in New
York. Unlike the other BRIC countries, which are overweighted
in such areas as energy, mining and manufacturing, Indias
economic diversity is its strength and gives it greater
flexibility in recovery.
India has the third-deepest equity market in the world in
terms of number of listed companies and overall liquidity and a
majority of company management teams have an acute focus on
profitability and shareholder returns as opposed to favoring
scale and revenue growth ahead of all else, says Colin Bell,
director of Global Emerging Market Equities at Auerbach,
Grayson & Co, a New Yorkbased broker-dealer in global
To generate returns that are more geared to domestic growth
in the BRIC nations and less dependent on external demand,
investors should embrace liquidity risk and spend time
evaluating business models with high barriers to entry, high
returns on capital and low capital intensiveness (a rare
combination indeed), adds Bell. I would go so far
to say that India does arguably have the deepest market and
best conditions for this kind of selective stock picking among
the BRIC nations.