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The companies defying India's slowdown

India's slowdown might feel like a recession but domestic cyclicals are still worth backing, says Rukhshad Shroff.

Shroff, who runs JP Morgan Asset Management's Indian Investment Trust, has added to domestic cycles, believing growth will eventually accelerate, albeit not to the 9% level investors previously enjoyed.

While Indian growth has pulled back to roughly 5.5% in recent years, Shroff pointed to signs prospects are picking up, such as the drop-off in corporate earning downgrades after analysts were downbeat for three consecutive quarters, and fighting moves by policy makers against public debt being labelled 'junk'.

'Growth will accelerate, but much slower than in the past because the big component driving that 9%-9.5% figure - investment - will be slower.  [A change] requires policy action,' Shroff said, adding that steps taken after last year's 'junk' rating threat were credible, while infrastructure projects unveiled for the months ahead would offer a boost.

Readying for this shift, Shroff has added to domestic cyclicals within his £495 million portfolio, which over the last three years saw its share price rise by 13.9% and its net asset value per share increase by 18%, versus a 10% gain in the MSCI India index.

The manager explained: 'What we have done over the last 12 months is added to domestic cyclicality, and to a large extent that has been in terms of consumption.

'That is the first leg of the recovery, so we have bought some auto companies, some cement companies, and sold out of more international cyclicals like metals and oil,' he added.

At the margins, Shroff has upped his exposure to companies poised to benefit from a pick up in investment, but only where they offer value.  These include Infrastructure Development Finance Company (IDFC) - a 'well-managed' firm which lends to infrastructure companies.

As one of the trust's largest positions, IDFC did well for the fund last year.  It gained around 80% despite the difficult backdrop.  

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Rukhshad Shroff
Rukhshad Shroff
34/37 in Equity - India (Performance over 3 years) Average Total Return: 15.56%
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