Silicon Valley East, way east

The biggest winner in 1999 was not a science & tech fund, but its success has everything to do with the information technology revolution. Bhim Asdhir, president and CEO of Excel Funds Management Inc. talks about the phenomenal rise of the Excel India fund and explains why he thinks that every investor could benefit from this unique overseas investment opportunity.

Bhim is getting a lot of attention from the media and investors these days. The Excel India fund made 202% gains in 1999 and shows no signs of slowing down. He attributes the fund’s success to a combination of factors, namely the quality of the portfolio managers, the investment environment and demographics in India and the information technology trend.

The fund is managed by Birla Sun Life Asset Management in India, the largest investment house in the country and currently voted the best portfolio managers in India for 1999. "I went to India in 1996 and I interviewed 80% of the money managers there," Bhim says. "I found the best." The investment team impressed Bhim as they demonstrated to him that they can add increasing value to a portfolio. "They know what they’re doing," he says. "They are bottom-up stock pickers. They have the best strategy, resources and they do the best research."

So why India? Bhim has a barrage of reasons, enough to convince many a skeptic. "India has one billion consumers," he says, "250 million of them are part of the affluent, well-educated, English-speaking middle class." The emergence of this middle class in the past decade has been instrumental to India’s strong economic growth, projected to be 6.5% in 1999 and expected to grow by 7 to 9% in the next five years. "President Bill Clinton recently said on 60 Minutes that he expects the Indian economy to eclipse the U.S. economy in the next 5 years," Bhim recalls. The Indian economy is the fifth largest in the world in terms of purchasing power, is largely driven internally, and thus immune to the pressures that caused the Asian Flu crisis in 1998. "Studies have shown that Indian markets have zero correlation to North American markets," Bhim says, making this investment an excellent diversification tool. Furthermore, the unique structure of the fund allows it to avoid India's capital gains witholding tax laws, making the fund one of the best ways for Canadians to invest in India.

India also has one of the largest knowledge-based populations in the world, and is the ideal choice for over 220 of the Fortune 500 companies for software and information technology consulting outsourcing. To date, one third of all Microsoft employees are of Indian descent. Similar numbers can be seen at IBM, NASA and others. The information technology revolution sits very well with the Indian workforce.

The Excel India fund portfolio contains about 40 stocks, with half its asset value invested in three key sectors: Software, Pharmaceuticals and Consumer Products, and is benefiting from increased consumer demand, software outsourcing and pharmaceutical patent protection laws. Some of Bhim’s favourite picks are Zee Telefilms, Infosys Technologies and Britannia Industries. Zee TV is South Asia’s top satellite channel with 90% market penetration in India and 180 million viewers. Infosys (which also trades on the Nasdaq, but at almost twice the price than in India) is a client-server technology software services provider with an impressive worldwide client list and top-notch management. Britannia has achieved 20% top line growth per year and 37% net profit in 1999, producing mainly biscuits and dairy products.

Levi Folk, Richard Webb and Peter Diplaros are Investment.com mutual fund specialists and editors of the Fund Counsel newsletter. They can be reached by e-mail at peterd@hqinvestment.com.