UNLEASH THE POWER OF KARMA

Bharti Televentures, Hero Honda and Tata aren't yet household names in Canada, but they soon could be if Bhim Asdhir has his way.

The blue-chip companies are among those in the Excel India Fund — Canada's only specialty India mutual fund, which invests almost exclusively (95 per cent) in India-based companies, with the balance invested in Canadian firms that do business in India. Driven by India's booming economy, the fund has posted double-digit returns in recent years.

"We're the only game in town," says Asdhir, founder and CEO of Excel Funds. "I realized India would ultimately move from being a poor country to being an economic giant," he says, explaining why he launched the fund in 1998 with $150,000 in seed capital.

"It was bound to happen because if you look at the institutions of India — the education system, the accounting system, democracy, the rule of law, the English language — it had the same foundation that made America very successful."

The jovial 41-year-old attended the University of Waterloo to study actuarial sciences after immigrating to Canada from India with his parents in 1980.

Today, the fund has about 15,000 investors — mostly non-Indians — and $60 million in assets under management. Asdhir believed Indian ex-pats — who are among the 917,000 South Asians in Canada — would be the natural target market for buying the fund. To his surprise, they initially shied away from it, though that is quickly changing. "These are people who left India 20 to 30 years ago and had an image of it as a poor country with a lot of corruption, so they were not comfortable investing there, but they don't realize how much it's changed. Now, basically I get one phone call a week from an Indian who has gone to India after a long time and they're blown away by the success they see there and want to be part of it."

India's robust economy, which is growing at about 7 cent per year, (compared with 2 to 4 per cent in most developed Western countries) is fuelled by a burgeoning middle class of about 300 million who are driving up demand for consumer goods — everything from fridges and cellphones to cars and computers.

"Half of people in India are age 25 or under, so they're just starting in their lives where they're going to be borrowing and spending. It's going to continue to generate phenomenal economic growth," says Peter Sacks, a managing partner with Toron Capital Markets, which oversees the fund's trades to ensure they comply with Ontario Securities Commission regulations.

Another unexpected source of growth in India is gas, points out Sacks. India has discovered gas reserves — which are about three times the flow-through from the Mackenzie Valley Delta — off of its southeast coast.

"So India is going to be self-sufficient and is looking to export gas now," says Sacks. "It's also partnering up with Pakistan to buy up gas fields in Myanmar, so all of a sudden international trade is superseding previous political hostilities."

However, there are pitfalls and challenges — including weak infrastructure and a cumbersome bureaucracy — when investing in an emerging market such as India, adds Sacks.

But the vicious boom-bust cycles of 15 or 20 years ago aren't likely to be repeated, given the country's stable political environment and restructuring of its financial markets, says Sacks, adding India's consumer price index is rising at about 3.8 per cent a year, compared to the double digit increases of 15 to 20 years ago.

`Our philosophy is to buy into stable companies with good track records and also pick firms where we have an opportunity to grow with the business — rather than churn the portfolio'
Nishid Shah, chief investment officer with Birla-Sun Life Asset Management

India's success has generated an average three-year return of 32.2 per cent for the fund, compared to 16.7 per cent for the Bombay Stock Exchange's Sensex index. However, it's been a roller coaster ride, with the fund dipping to a low of minus-33.7 per cent in 2001.

Having experts on the ground in India picking stocks is key to the fund's success, says Asdhir. Nishid Shah, chief investment officer with Birla-Sun Life Asset Management — a partnership between Birla Group, one of India's largest conglomerates and Canada's Sun Life Financial — leads a team of nine analysts who manage the portfolio in Mumbai.

He holds 35 to 40 stocks in the portfolio at any given time — cherry-picking from among more than 6,000 on the Bombay Stock Exchange. Stocks on the exchange trade at 12 times earnings, making them among the cheapest in the world.

"Our philosophy is to buy into stable companies with good track records and also pick firms where we have an opportunity to grow with the business — rather than churn the portfolio (with constant buying and selling of stocks)," says Shah, in an interview from Mumbai.

Their No. 1 position is Bharti Televentures — a cellular phone company whose stock value has gone up almost 400 per cent since Shah bought it two years ago. The country's largest bank — State Bank of India, which controls 20 per cent of banking market share in India — is another favourite, as is software giant Infosys.

Rounding out the portfolio are Hero Honda — India's largest-selling motorcycle — and Tata Group, an Indian multinational with diverse holdings ranging from luxury hotels to steel manufacturing.

The fund's investments are held through Mauritius, which reduces the amount of Indian taxes.

Asdhir has also turned his attention to China — whose economy is growing even faster than India's at 9.5 per cent per year — launching the Excel China fund in 2003 and, for investors who want a stake in both countries, the Excel India/China fund this year.