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FSM Fund Choice: Manulife India Equity Fund [December 2016] December 1, 2016
In this article, we will be sharing our findings on the current Indian economy and how investors could take the opportunity to invest in the fastest growing major economy in the world via this month’s fund choice --- the Manulife India Equity Fund.
Author : iFAST Research Team

FSM Fund Choice: Manulife India Equity Fund [December 2016]

The responses from various markets around the world towards Trump’s presidential election victory have been dominating the front pages. Among the hot headlines were emerging markets’ bond rout, US equities’ rally, and the strengthening of the US dollar. In between these headlines, investors would have seen news concerning an unpredicted demonetization move coming from the second most populous country, India.

There has been many comments and views on the bold move taken by the India Government to combat dark forces lying within the Indian economy. In this article, we will be sharing our findings on the current Indian economy and how investors could take the opportunity to invest in the fastest growing major economy in the world via this month’s fund choice --- the Manulife India Equity Fund.

Economic Growth to Stay Strong

Robust Domestic Consumption Underpins Growth

India’s Q32016 GDP growth came in at 7.3% yesterday, falling below consensus estimate of 7.5%, but improved from prior value of 7.1%. The economy continues to growth on the back of robust domestic consumption. Moving forward, we expect the main driver of the economy to remain strong amid wage increase under the 7th Pay Commission together with an improved weather condition this year that points to an improvement in agriculture yields.

FIGURE 1: Annual GDP growth and foreign direct investment

Bold Structural Reforms

The recent demonetization move is aimed at combating black money and counterfeiting notes by shedding light on more than 80% in value of the currency in circulation. The act, other than waging war on black money, is also targeted to bring the unbanked employees and business owners into the tax radar to curb tax evasion by forcing them to use banks and digital payments.

The bold move taken by the Prime Minister is poised to cause some short-term disruptions to the economy. Nonetheless, we opined that this move will have a profound effect to the economy in the medium- to longer-term, as the government will be able gauge the economy more efficiently. Additionally, plans to collect GST next April will expand the fiscal envelope of the Government, allowing more quality spending on enhancing and building infrastructures across the rural areas. This will have a spillover effect to stimulate local and foreign investments, which also creates more job opportunities.

Ongoing Reforms to Feed into Earnings

In the near term, sectors that rely heavily on cash transactions might have to endure a short-term pain coming from liquidity constrain in the market. Jewellery and real estate sectors in particular, which rely on large notes on their business transactions will see the most of their demand falling as the market struggles from limited money supply in the market. In the medium- to long-term, however, these sectors are expected to recover as soon as the temporary money supply issues subsided.

Sectors which have long value chain from basic goods to final consumption stage with operation spread in multiple states such as materials as well as logistics are expected to be the major beneficiaries of GST, as the new tax system will replace more than a dozen of the current levies across state and federal level, potentially bringing down the actual tax imposed on the final products. The tax overhaul will help reduce the burden of tax on goods and services provided by these sectors, thereby increasing the earnings prospect of these sectors moving forward .

A stronger economy outlook provides a positive backdrop for corporate earnings. As of 25 November 2016, India SENSEX index is trading at a PE ratio of 18.0X, and is estimated to deliver earnings growth of 7.12%, 24.7% and 19.1% for FY17, FY18 and FY19 respectively, according to Bloomberg’s forecast. We maintain an attractive rating on Indian equities.

Ample Room for Further Rate Cuts

FIGURE 2: Inflation rate, interest rate and foreign reserve of India

The historic demonetization measure will reduce the circulation of currency in the system and this will place downward pressure on prices of goods and services. Analysts are expecting the Reserve Bank of India (RBI) to keep an accommodative policy stance, as there is still sufficient capacity for the central bank to cut rates should the economy requires monetary support. Plus, the current foreign reserve of India sits at an all-time high level, providing cushion to the central government as well as the Indian Rupee.

Weak Rupee, Strong Earnings Growth to Attract Foreign Direct Investment (FDI)

FIGURE 3: Foreign fund flows of India

India are amongst the Asian emerging economies that suffered foreign outflows after Donald Trump’s victory in the US presidential election. However, the fundamentals of the economy remain unchanged. At this juncture, we do not see a negative knock-on effect on India’s growth from the change in terms of trade with the US, if any, or even from the escalated political risk in the Europe region, as the domestic consumption sector is doing most of the heavy lifting on the economy. The improving current account balances and reserve buildup will also serve to weather uncertainties moving into 2017.

Ever since the launch of “Make in India” campaign in October 2014, FDI to India have surged more than 20%. All along the period, the government has gradually made several adjustments to ease FDI restrictions across various sectors. The opening up of more sectors for foreign participation coupled with strong structural reforms, along with the recently weakened Rupee will serve as a catalyst to attract foreign fund flows moving forward.

Resilient and Consistent Fund Performance

FIGURE 4: 5 years cumulative return
FIGURE 5: Calendar year returns.

Table 1: Returns across various period.

3 mth(%)
6 mth(%)
1 Yr(%)
3 Yr*(%)
5 Yr*(%)
Manulife India Equity Fund

Source: Bloomberg, iFAST compilsations. Data as of 31 October 2016. Returns in MYR terms, dividend reinvested.

The Manulife India Equity Fund feeds into the Manulife Global Fund – India Equity Fund, which is managed by Manulife’s regional asset management team. The fund aims to achieve long term capital growth through equities and equity-related investments of companies covering different sectors of the Indian economy. For the past 5 years, the fund has managed to consistently outperform its benchmark index in terms of annualised return. By investing into the fund, investors can gain exposure towards the India equity market, and at the same time capitalise on the expertise from the portfolio managers which have the resources and are familiar with the Indian equity market. As of 31 October 2016, the fund has a 3-year annualised volatility of 17.2% and Sharpe ratio of 1.15. The Sharpe ratio is the average return earned in excess of the risk-free rate per unit of volatility, and value of more than 1 indicates that the fund has a decent risk-return characteristic, despite the volatility.


In the past, we know that the tax structure, regulations and poor infrastructures have held back India’s economy. However, it is not until the recent years the government has gained support of its people to push through the necessary changes required to propel the economy forward. At this point of time, the India’s macroeconomic picture appears healthy. India’s on-going structural reforms might not be smooth, given its unique federal system and characteristics of the economy, but these reforms are necessary to pave a solid, sustainable growth path for the economy giant. For investors who wish to tap into the opportunities lying within the India economy, they can do so by investing in the Manulife India Equity Fund. It is important to note that the Indian equity market is volatile, and we advocate investors to place this fund as the supplementary portion of their portfolio (max 10% of overall portfolio).


This article is not to be construed as an offer or solicitation for the subscription, purchase or sale of any fund. No investment decision should be taken without first viewing a fund's prospectus, product highlight sheet (PHS), and if necessary, consulting with financial or other professional advisers. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Amongst others, investors should consider the fees and charges involved. The relevant prospectuses have been registered and lodged with the Securities Commission. Past performance and any forecast is not necessarily indicative of the future or likely performance of the fund. The value of units and the income from them may fall as well as rise. Where a unit split/distribution is declared, investors are advised that following the issue of additional units/distribution, the NAV per unit will be reduced from pre-unit split NAV/cum-distribution NAV to post-unit split NAV/ex-distribution NAV. Where a unit split is declared, investors should be highlighted of the fact that the value of their investment will remain unchanged after the distribution of the additional units. All applications for unit trusts must be made on the application form accompanying the prospectus. The prospectuses and PHS can be obtained from Opinions expressed herein are subject to change without notice. Please read our disclaimer in the website.