Magazine Issues » October 2009

EXECUTIVE INTERVIEW: Ask the right questions

Bharat Shah (pictured), CEO of India’s Ask Investment Managers, believes that India is set to benefit from global scepticism about the West. By Angèle Spiteri Paris...

shah.jpg European investors may still look first and foremost to European asset managers when they want to invest in emerging markets. But the growth in emerging market economies has helped some indigenous managers raise their game and compete against Western outfits for business in their homelands.

One of these is Ask Investment Managers, based in Mumbai, India. Launched 25 years ago it has expanded its presence in Europe in recent years, with a particular focus on pension funds. The firm has around US$500m (€341.7m) of assets under management.

Bharat Shah, CEO of Ask Investment Managers, expects that interest in Indian equities, which is one of the most popular emerging market stories of recent years, will not diminish as a result of the financial crisis, but may increase if investors remain negative on Western markets.

“Opportunity in the Western world has actually diminished and we believe the prospects here are stronger. The inexorable process of the shift of wealth from the West to the East has been in the offing for some time now, and I guess it will strengthen further. The secular case for India rests on her large size of opportunity, rapid growth rate, resilience of the economic model, durability of the growth rate and a remarkable and rising level of capital efficiency,” he says.

“The jury’s still out as to whether the recovery [in the West] has played out or whether those economies are still on steroids. I hope that new bubbles are not being created to sort out an old bubble.”

Shah adds: “India is not just a flash in the pan. I believe in the long-term secular growth of the Indian market. None of the characteristics of the economy or the market have changed since the India story began in 2002. India remains on the same path, despite the unprecedented violence of last year.”

Trouble in China
Beyond the West, the CEO says China causes him some concern too.

“The worries about China are actually bigger compared to the worries about European and US markets. Western world markets are more open and transparent while the Chinese situation is not all that clear. There can be a lot of booby traps sitting there that we are not fully aware of.

“I am also concerned about significant overcapacity in many businesses in China. There are a lot of smokestack capacities. We have deep concerns about the overall capital efficiency in China, about the returns on capital and equity employed.”

Shah may not be alone in his conviction about India. The rupee has advanced against the dollar as foreign investors have injected money into the country.

Also, figures from the Securities and Exchange Board of India show that funds based abroad have bought US$8.7bn (€5.9bn) more Indian equities than they have sold this year. Furthermore, the $1.2 trillion economy expanded by 6.1% in the three months to June. This is slower than the previous year, but the growth still marks an acceleration over the last quarter of 2008.

International markets
Over 55% of Ask’s current business comes from foreign clients and therefore Shah says the firm is making efforts to be more in touch with overseas investors.

“Last year we built an office in Sydney, Australia. We currently have offices in Dubai and in a few months we’re looking at setting up offices in London and Singapore. This will give us greater proximity to the clients, definitely higher than what we have today.”

Although Ask has made good headway with investors in international markets, Shah says that brand recognition is still a challenge.

“We are a boutique firm and therefore we don’t carry a name like Goldman Sachs or Merrill Lynch. There’s no automatic brand recall and to that extent it’s a bit of a struggle to make our name be known. This will always be a challenge,” Shah says.

Part of Ask’s strategy in this regard is to partner with a strong firm abroad and it is currently on the hunt for such firms in Switzerland and other European countries. The search for a partner in London started last September.

Dealings in Ask’s home country are another matter altogether. Shah says: “We have much better brand recall and far greater routes into the market in the local area. I personally know 90-95% of the top executives, chairmen or CEOs of every business worthwhile knowing. We have deep connectivity with the local market.”

Investment focus
Ask Investment Managers has been around for some 25 years. Shah says: “Nothing has changed in terms of our business plans. We continue to invest in the demands of our businesses and to make sure all the necessary resources are in place. We believe the size of the opportunity in India is large, sustainable and long term.”

But the last year of turbulence has sharpened Ask’s investment focus. “We  have become even more stringent in our scrutiny of the companies we invest in. It has also made us revisit our business model to ensure we have a  greater amount of intellectual capital, financial capital and business resources in place. This way we can get through any difficulties the markets can cause,” Shah says.

Despite the crisis, the firm has not rolled out a new suite of products. Shah says: “Our approach is less product-centric. Sometimes we feel that products tend to get deceptive because clients don’t always understand the nuances of many products. So, rather than confuse them with too many products we prefer to keep the options simple.”

He adds: “We don’t want to create shallow offerings or things which can be good for us in terms of raising assets but which are not fulfilling any real need of the client.”

Repercussions of the crisis
Shah says the fundamental rationale behind investment in India is unaffected because India did not see any bank blow-ups and there were no systemic failures within the Indian market. However, investors in India were affected.

“It would be  unwise for me to say the crisis didn’t affect us. The value of any assets in the equity market declined,” says Shah, adding it was also a matter of sentiment. “The shift was so sharp that it shook people up and to that extent, even if the mind was telling people that things were exaggerated, many of the businesses were quoting at prices deeply below the real value. As the perversity of the gap between price and value deepened, it further prompted people to take their money out instead of putting it in,” he says.

He adds: “Fundamentally we have complete confidence in the belief that these times represent opportunity points rather than threats and therefore this is a great time to get back into equities.”

©2009 funds europe


In the first quarter of this year the Indian economy registered 5.8% growth. The expansion was a result of high government pre-election spending and stronger than expected performance of the agriculture sector.

According to economists, India’s growth is due to slide to 6.1% over 2009 and 6.6% in 2010. The medium-term outlook for the economy, however, still looks favourable – growth should return to around 7-8%, but not before 2011.

But Kamalesh Chandra Chakrabarty, deputy governor of the Reserve Bank of India (RBI), said that there has been significant financial deepening in India. In the RBI’s September bulletin Chakrabarty said assets of commercial banks experienced healthy growth, primarily driven by credit increases and a sharp rise in credit-GDP, deposit-GDP ratios. Over 2008-2009 the ratio of banks assets to GDP increased to slightly over 93%. This was a significant improvement from 48%, as registered in 2001.

The deputy governor said: “Our [Indian] exposure to troubled sub-prime assets and related derivatives is negligible in comparison to many other economies… The policy challenge is to continue to ensure financial stability in India during this period of international financial turbulence, while achieving high growth with price stability.”

©2009 funds europe