The emerging-market industry is often dominated by China. Ajay Krishnan who is the lead portfolio manager for the $415M Wasatch Emerging Select Fund believes that Indian companies offer a better long-term return on capital.
“China’s companies are focused on being the biggest,” he says. “India’s companies are focused on being more profitable and generating returns on capital and cash flow.”
The sentences are well reflected in the portfolio allocation which consists of 30% of fund allocation to India whilst 6% to China.
In comparison, the fund’s benchmark, MSCI Emerging Markets, has a 13.2% weighting to India, and a whopping 33% of the index is in China.
India’s digitalization initiative is underappreciated by investors, according to Krishnan. Over the last five years, India’s government has increased broadband internet infrastructure and established a public digital-payments system, ensuring that everyone has a bank account and a secure, cloud-based digital locker to store, share, and verify documents. When that pressure is combined with a youthful, technologically literate population, India is setting in motion a virtuous cycle that might endure for years.