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Measuring India as an Investment Option

Over the past few years, TIFF’s equity team has tended to allocate more capital to specialists than generalists. Within the equity manager universe focused on fundamental research, we believe that true domain experts tend to have a more sustainable competitive advantage, particularly in countries or sectors in which some combination of technical knowledge, local presence, personal networks, or experience are key ingredients to well-informed decisions. As we search for superior specialists, we acknowledge that it’s very difficult to research multiple complicated geographic markets simultaneously. So, we decided to be thorough in a few selected markets (as opposed to doing a cursory job in multiple markets) and accept some country-specific risk, at least initially. We discussed the process of focusing significantly on specialists with TIFF’s board members over multiple meetings, and they have been supportive of these adjustments.

We invested with several China-focused managers in 2016. Currently, we are in the later stages of considering an investment with a manager in India. We are optimistic about this market for several reasons. Like China, India is a relatively large market with good growth prospects and is underrepresented in global equity benchmarks, such as the MSCI global and regional indices. Also, if historical results are at all indicative of the future, India will bring some diversification value to our existing comprehensive portfolios. Diversification is a complex but critical concept in our analysis. It may seem at first glance that India is merely another populous emerging market like China. However, our in-depth research on the relationship between India’s equity returns and those of China shows that an India investment will likely offer diversification effects relative to China as well as diversification benefits to an entire comprehensive portfolio that holds both investments. Put another way, within an emerging markets construct, China’s historical returns don’t explain much about India’s historical returns, and vice-versa. Moreover, the relationship between the two return streams has been weakening for the past decade. While none of this is intuitive, we believe it is all positive.

This is an excerpt from a longer article. Please download the PDF to read more.
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