News from our advisers

Our principal Global Outsourcing / Internet Hub advisers (an India Fund) wrote at the end of June:

A weighted average EPS growth number of 45% for the year to 2008 has now popped out of the bottom of his (their analyst’s) spreadsheets. Whilst there is talk of cost pressures and capacity constraints etc, it is hard, unless one takes the time to meet the businesses on the ground, for outsiders to comprehend the scale of the opportunity in India over the coming many years.

Indeed, one of the most exciting aspects of the India stock market is the way in which new businesses appear from nowhere and in a flicker become multi billion dollar activities we were a founder investor in Infosys back in 1993 when the market cap was only USD 5mn – fourteen years later this number is USD 27bn. The case for running one’s winners personified if ever it was. We have several examples in our portfolio of stocks with the same potential. Educomp, for example, is positioning itself to revolutionise public sector education by digitalizing syllabuses and computerising class room delivery. With a ratio of over 50 children per teacher and state governments desperate to find ways of spending their IT education budgets, and with only three thousand of the country’s one million schools catered to, blue sky beckons. Champagne Indage, where we own 5.6% of the company, controls 70% of India’s domestic wine market and still sells only a nano-spoonful per capita per annum. Surprising perhaps to some, large tracts of India are extremely fertile for wine growing (indeed we expect Indian wine soon to feature on dining tables in the West alongside those from the likes of Chile and New Zealand). Less surprising is that newly bulging wallets and unleashed aspirations are likely to result in the company doubling sales yearly for some considerable time to come. Only two million out of India’s total of 140mn hectares of farm land is drip irrigated. Jain Irrigation has a 50% market share in drip irrigation systems and sees only upside, given increasing government support for this sector now that food shortages are becoming such a hot topic. Less than 3% of India’s household savings are currently invested in the equity markets. For this number merely to reach double figures over the next decade (the number in, say, Korea, today is 26%) would result in annual market inflows of over USD 75bn. This compares to a local mutual fund industry still only USD 35bn in size. One of our new holdings, India Infoline, with its pan-country footprint and top-notch management, looks set to exploit this massive opportunity.

GTI comment: We make that return (in Infosys shares) over 5,400 times in 14 years. OK, a great part of that needs to be adjusted for stock issues, but who said the internet bubble was the death knell to technology investment? The five stocks mentioned here all look like winners. The Global Outsourcing theme played through places like India means that through GTI we can participate in what could one day become a “bubble” market à la Japan in the 1990s.