John Duffield, boss of New Star and one of the fund industry’s most strident personalities, admits this may not be the perfect time to be championing emerging markets.

India, China, Brazil and Russia are struggling to decouple from the global slowdown and India’s main index plunged 32% this year, further than China at 30%.

However, Duffield believes the long-term story behind India remains compelling and has committed several million pounds of his own money to his new fund venture with Tata.

After being introduced to the giant Indian conglomerate last summer, he has decided on a joint venture with Tata Asset Management, comprising a Luxembourg-based fund which will be open to British investors from June, subject to UK regulatory approval.

Tata Asset Management, based in Mumbai, manages in excess of $6 billion (£3 billion) worth of assets across a range of 31 funds investing in India and globally. The New Star Tata fund will resemble the Tata pure equity fund which has grown 25% in the past year and 52% over the past five years.

Duffield, who founded New Star after selling Jupiter Asset Management in 2001, has been struggling to regain momentum following his troubled foray into the commercial property market three years ago. He launched New Star Property in October 2004, and the fund was taking £100 million a month at its peak in 2006 but has since plunged by about 11%.

The downturn caused Duffield personal losses of about £100m.

Now he plans to make it all back with a personal investment in the Tata India venture worth “hundreds of millions”.

Despite waiting six years to launch into key emerging markets, Duffield describes China and India as “the future”, but adds that he is content to put China on the back-burner as he believes India’s prospects are stronger.

Here he shares his views.

Is now the right time to go into India?

New Star has done too little in the emerging markets and we know we have to catch up as quickly as possible. I would rather start after a 30% correction than at the very peak. I personally have put my own money into this fund – a few million pounds – and I imagine that I will stay with it 10 or 20 years and when I die my children will hopefully keep the investment.

I think one would invest in India over the long-term. India is just at the start of its growth. You have got a billion people there and a very large number are highly educated. A million students graduate in engineering every year in India – that’s an impressive statistic.

Compared to most third-world countries it has a very high proportion of educated people who are graduates of serious universities. Indians are striving to improve their lifestyles and consumption is the economy’s biggest driver. It seems to me they’ve got a huge future ahead of them.

Why India before China?

China is obviously a bigger country and slightly faster economy, but there are quite a lot of arguments for India over China.

India has a more sophisticated economy and I dare say in the long-run has better prospects. China manufactures a lot of simple goods on a very cheap basis and they sell on price. That is an unsophisticated economy, and it is a vulnerable economy. Even though China’s costs are very low, there is going to be someone producing it cheaper sooner or later – whether it’s Vietnam, or Bangladesh, or the Philippines. India’s exports to the West are more sophisticated – for example, software and services. Another interesting characteristic about India’s growth, and something that is rare among developing countries, is that this growth is largely a domestic story.

Can emerging markets decouple from the US?

I don’t think it’s a black and white issue. To be practical, if America goes into a big recession now that’s going to have some impact on China. Exports from China to America will presumably go down. But on the other hand China will still continue to grow – it might slow from 10% to 7% or 8%. You should buy into emerging markets for the long term, though.

Where are you looking for opportunities?

The No 1 sector we are going for is infrastructure. India needs a huge amount of money spent on infrastructure and a lot of it will be done by the private sector, partly financed by the government. The country has a fast-growing population but it is a third-world country still and they are well behind on roads, water, and drains.

A huge investment programme is under way – last year the government estimated it would inject $500 billion into domestic infrastructure by 2012. This momentum is likely to create a structural growth cycle that should last for several decades. The government has committed £35 billion to the National Highways Development Project by 2012.

Larsen & Toubro is a design, engineering and construction firm with a presence across most infrastructure areas – power generation, equipment manufacturing, shipbuilding and defence. If we were going to launch tomorrow we would buy in, as L&T has stronger technical and financial strength then many of its peers which means it is well placed to benefit from India’s infrastructure investment prospects.

We are also looking at HDFC, India’s largest mortgage-financing company with a market share of about 30%. It also does banking, life insurance and asset management. As Indians become more wealthy it will only write more and higher quality business.

Also in finance we are looking at ICICI, which obviously has a strong presence in the UK where it offers some of the best rates on savings accounts. I would say about 7% of the portfolio may end up being in software though valuations of IT firms are looking pretty high.

About 6% will probably go into telecoms – where we are looking at Bharti Airtel, the telecoms giant. Its core business is mobile phone, broadband and long-distance but it has recently moved towards retail via a proposed “cash and carry” joint venture.

What’s the relationship with Tata?

We are doing the marketing and administration of this fund and Tata is doing the investment management. Tata is the second-biggest conglomerate in India and a 150-year-old company. It is also 65% owned by charities – it isa very high quality company with tremendous integrity. That said, we are going to be careful not to be too overweight in Tata, but we are not going to exclude ourselves from buying shares.

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