Soap, toothpaste help biggest fund bypass India’s growth math

Mumbai, July 5: For India’s biggest fund manager, S Naren, there are better ways to gauge economic growth than the nation’s much-reviled official estimate of gross domestic product.

Naren says he relies on data for spending on soap and toothpaste, travel and electricity usage when deciding where to invest ICICI Prudential Asset Management Co’s $29 billion assets. Double-digit demand growth for everything from fuel and air travel to air conditioners means he doesn’t worry about whether GDP data overstates the economy’s strength. Only rising oil prices or a sub-par monsoon would derail his bullish bets on power utilities and finance companies, he said.

“I’m not an economist, so I don’t understand the GDP numbers,” Naren, executive director and chief investment officer at ICICI Prudential, said in an interview in Mumbai. “I would use things like coal and power demand, two-wheeler sales and volume growth in areas like toothpaste, soaps and detergents. These areas can see huge growth, leave aside the GDP numbers.”

The question mark on India’s growth data means other indicators of economic activity are becoming more important for investors trying to gauge how successfully the country can decouple from a slowdown in China and Europe. Morgan Stanley Investment Management’s Head of Emerging Markets Ruchir Sharma said Friday India probably grew 5% to 6%, far short of the 7.6% published by the gover nment.

ICICI Prudential Value Discovery Fund has climbed 20% annually in the five years through June, surpassing 95% of its peers. That’s more than the 14% yearly gain in the Nifty Midcap Index during the period. The fund had invested about 30% of its 132.1 billion rupees ($2 billion) assets in banks, engineering firms and drugmakers as on June 30, data compiled by Bloomberg show.

India’s fuel demand rose 11% in the year ended March, the fastest pace since at least fiscal 2001, while air travel grew 23% in the first five months of this year, official data show.

India’s headline numbers have puzzled investors ever since the gover nment’s statistics department changed its method for calculating GDP in January 2015. The new calculation uses market prices rather than factor costs, and a data set that includes reporting from hundreds of thousands of smaller companies and government bodies. The formula change prompted the annual growth to rise to about 7% virtually overnight from a near-decade low of 5%.

“More than a year has passed and a growing number of people have come around to the view that there’s something wrong with the method,” said Morgan Stanley Investment’s Sharma, author of The Rise and Fall of Nations. The new method “has made things worse in terms of credibility.”

Even so, India has “good, solid growth,” Sharma said, forecasting a “path of steady acceleration” for the economy. Bloomberg

S Naren