Causeway Capital Management’s Arjun Jayaraman is still bullish on India despite the country’s unexpected election result. The portfolio manager told CNBC Pro Talks last week that India is his top pick among emerging markets, and that the longer-term prospects for this market are good. But he cautioned that there may not be “huge upside” in the short term. For the BSE Sensex index, he predicts total returns will fall in a range of low to high single digits, to lower double digits. But international investors would find it difficult to invest directly in Indian stocks. One of the best ways to do so is to invest via exchange-traded funds. Jayaraman said small-caps stocks are the “most interesting part” of India. “Since India is a strong secular growth market, we would say the mid and small-cap [market] is the place to be. That’s where you get the most beta, or the most exposure to that strong secular growth. The large caps will also be good, and they will participate in the growth, but not to the same extent as the mid and small [caps],” Jayaraman said. Against that backdrop, he named one ETF to play this small-cap corner of the market: the iShares MSCI India Small-Cap ETF . “The ones that have the most small-cap exposure the last few years will have the highest return,” Jayaraman said. For investors who want to invest in large-cap stocks, he recommends the iShares MSCI India ETF . A third ETF that Jayaraman likes is the WisdomTree India Earnings Fund , which tracks an index that measures the performance of companies traded in India that are profitable. Jayaraman manages Causeway’s Emerging Markets Fund and International Opportunities Fund . Both funds have outperformed their benchmarks over the year to May 31, with the former rising 13% — beating the MSCI Emerging Markets’ 3.5% — and the latter up 9.6% year-to-date — above the 6.1% of the MSCI ACWI ex-U.S. While both funds invest in emerging market stocks, the International Opportunities Fund also has stocks of companies in developed countries outside the United States. Despite the unexpected election result in India, he remains confident in that market because of the valuation support — he pointed out that his fund’s Indian stocks currently trade at “significant” price-to-earnings discounts compared with the MSCI India index. “Market volatility may provide repositioning opportunities,” Jayaraman said in a note written with other portfolio managers of the fund.
