Infrastructure is booming in India, as the Asian giant is raising its spending substantially in this area. Investments in this market are also paying off — infrastructure funds are generating top returns. Those who prefer to pick stocks in emerging markets such as India and who want to go purely into infrastructure may be wondering which names to place their bets on. Causeway Capital Management’s Arjun Jayaraman is bullish on one pure-play infrastructure stock: REC , a company which issues loans to power utilities and to other infrastructure. “It is one of the cheapest ways to play infrastructure,” the portfolio manager told CNBC Pro Talks last week. “Many of the infrastructure plays in India are quite expensive, because the market knows [that] you know that infrastructure is an important part of the Indian story,” he added. Jayaraman also believes the stock is “very low risk” as it is a state-owned enterprise. “The fact that it is owned by the government, gives it almost like a government guarantee in terms of the loans that it puts out there,” he said. Jayaraman also said its dividend yield is “strong,” as is its price-to-earnings multiple — both of which look “reasonable.” International investors who may not find it easy to buy Indian stocks can go through an international broker or invest via an exchange-traded fund. REC makes up 4.5% of the Nifty India Financials ETF, for example. 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% — more than MSCI Emerging Markets’ 3.5% — and the latter up 9.6% year-to-date — beating the 6.1% of the MSCI ACWI ex-U.S. Jayaraman remains bullish on India on the whole, despite recent volatility in that market. Prime Minister Narendra Modi unexpectedly failed to secure an absolute majority for his party during the recent election. Though he called the Indian market a “very strong growth story,” he said he would focus on its small- to mid-cap segment. “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. India is his top pick among emerging markets, and he says its longer-term prospects are good, even though 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.
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