Background
For several years, I have looked for investment opportunities in India. In my view, it is one of the most dynamic countries in the world and will, over time, likely outperform China for a variety of reasons:
- the legacy of British institutions such as a formalized legal system which is endorsed by the populace and has the potential to be more functional (this as opposed to being re-invented);
- a democratic political system which has been nothing short of amazing in accommodating the diversity of demands from a very large and culturally diverse population;
- an educational system (some of the best universities in the world) and a respect for learning;
- an outlook which is gradually giving more recognition to entrepreneurship;
- a more favourable population structure with many young cohorts as opposed to the socially engineered problems caused by China's one-child-per-family stricture;
- my sense that the country has a greater range of flexibility in addressing problems and opportunities; and,
- my sense that India's institutions are adapting more organically to charting the country's way through domestic and international waters.
Difficulty in Investing in India
For all of this, I have found it difficult to find a way to invest meaningfully and knowingly in India. I don't have the skills and knowledge to invest directly in Indian equites. I don't want to invest by way of mutual funds due to their outrageous fees and general lack of performance. I would like to get better performance than investing by way of an India-based ETF. There are a few Canadian-listed companies with substantial operations in India but I did not find them all that attractive. The other option is American Depository Receipts (ADRs). While the ADRs are tempting I have concluded that people who are involved directly in India's financial community are more able to uncover opportunities for growth.
Fairfax India Holdings Corp. attracted my attention.
Fairfax India Holdings Corporation is an investment holding company publicly traded on the Toronto Stock Exchange whose investment objective is to achieve long-term capital appreciation, while preserving capital, by investing in public and private equity securities and debt instruments in India and Indian businesses or other businesses with customers, suppliers or business primarily conducted in, or dependent on, India. Generally, Indian investments will be made with a view to acquiring control or significant influence positions.
Fairfax India takes a long-term value approach towards acquisitions and investments in the Indian region. We focus on long-term capital appreciation through a flexible and value-oriented approach, underpinned by our guiding principles, including integrity, transparency and responsiveness in all our dealings. Our permanent capital base enables us to execute a unique set of transactions; by taking a very long-term view, combined with the ability to execute highly flexible and creative deal structures.
http://www.fairfaxindia.ca/corporate/Company-Profile/default.aspx
I decided not to buy when the IPO was first presented to the market, figuring that the price would settle down once the initial enthusiasm abated. In my view, subsequent investor reaction has been affected by the state of the broader market and fears for the future. Today (December 15/15) the share price dipped below the issue price of $10 US.
Some people may wait until most of FIH's funds are invested and put to work. It may be akin to trying to time the market. However, perhaps it does not make sense to try and time the market for an optimal entry point. Bottom line: there's no "right" choice.
Fairfax India Holdings Corporation is an investment holding company publicly traded on the Toronto Stock Exchange whose investment objective is to achieve long-term capital appreciation, while preserving capital, by investing in public and private equity securities and debt instruments in India and Indian businesses or other businesses with customers, suppliers or business primarily conducted in, or dependent on, India. Generally, Indian investments will be made with a view to acquiring control or significant influence positions.
Fairfax India takes a long-term value approach towards acquisitions and investments in the Indian region. We focus on long-term capital appreciation through a flexible and value-oriented approach, underpinned by our guiding principles, including integrity, transparency and responsiveness in all our dealings. Our permanent capital base enables us to execute a unique set of transactions; by taking a very long-term view, combined with the ability to execute highly flexible and creative deal structures.
http://www.fairfaxindia.ca/corporate/Company-Profile/default.aspx
I decided not to buy when the IPO was first presented to the market, figuring that the price would settle down once the initial enthusiasm abated. In my view, subsequent investor reaction has been affected by the state of the broader market and fears for the future. Today (December 15/15) the share price dipped below the issue price of $10 US.
Some people may wait until most of FIH's funds are invested and put to work. It may be akin to trying to time the market. However, perhaps it does not make sense to try and time the market for an optimal entry point. Bottom line: there's no "right" choice.
Why I Invested
Prem Watsa is one of the most astute investment managers in Canada. His track record is impeccable. He is honest. I have had a good experience with Fairfax Financial Holdings Limited (FFH), a member of the Financial Log Book.
He has recruited some of the best minds in the business. He and his team are well equipped for the task. They have:
- an educational outlook shaped top-notch skills acquired by attendance at India's and Canada's best educational institutions;
- years of investment experience in India and elsewhere; and,
- a cultural awareness that can only be achieved by living in India - no need for hired consultants and like.
He and his team are well embedded in the Indian investment community and know how to navigate in those waters.
He is a value investor with the long view and is not averse to sailing upwind when others head to port.
All said and done, the investing premise comes down to:
- the quality of management
- the opportunity presented by India
Some Caveats
I made the investment with an awareness that there are some challenges for Watsa and his team:
I made the investment with an awareness that there are some challenges for Watsa and his team:
- endemic corruption
- an impoverished infrastructure which barely can sustain the demands placed upon it - makes it more challenging to establish facilities-based new enterprises but also presents opportunities
- a mostly moribund civil service, rife with corruption and with a vested interest in maintaining a "red tape empire"
- the latent barriers of a caste society
- an educational system which is highly uneven in its quality and accessibility
- competition for resources with countries in Asia and elsewhere and a reliance on energy from the Middle East
The following references provide more detail:
2015 Index of Economic Freedom
Subcontinent stagnation: How India botched its economic miracle
India is undergoing tremendous change. From the time of its independence, when it had one of the lowest per capita incomes in the world, it has made tremendous economic strides. It has been a bumpy ride. I am prepared to take the long view and accept the volatility which accompanies economic transformations. I fully expect that this will be reflected in the price history of FIH.U. It will not be comfortable at times. On the plus side, it appears that the new government is far more business friendly than its predecessor and is making efforts to improve the climate for business. It will be a long slog as it will have to confront the inertia of powerful groups intent on maintaining the status quo e.g a bloated and inefficient civil service, corrupt politicians with a long-formed habit of demanding/accepting bribes and laundering the proceeds to avoid taxation, etc.
There is also the issue of management fees (see Investor Presentation below). I am prepared to accept them, noting that different fees are applied to invested capital and resting capital (e.g. bonds).
Here are a few references for FIH.U
2015 Index of Economic Freedom
Subcontinent stagnation: How India botched its economic miracle
There is also the issue of management fees (see Investor Presentation below). I am prepared to accept them, noting that different fees are applied to invested capital and resting capital (e.g. bonds).
Here are a few references for FIH.U
Investor Presentation for IPO - Note the characteristics of the fund which, in my view, are investor friendly.
Corner of Berkshire and Fairfax - This is THE go-to source for commentary. Many of the posts are thoughtful and knowledgeable - a nice change from many other investor forums
http://www.valueinvestorsclub.com/idea/FAIRFAX_INDIA_HLDGS_CORP/136280
http://www.valueinvestorsclub.com/idea/FAIRFAX_INDIA_HLDGS_CORP/136280
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