The manager who set up Goldman Sachs’s India-focused equity fund in 2006 is set to start one of his own after managing money at the U.S. bank for more than 17 years.

Prashant Khemka, who oversaw $5.3 billion in emerging-market assets until his departure in April, plans to launch two long-only, absolute-return funds for investing in Indian shares. An eight-member team is being assembled and the new company, named White Oak Capital, will start operations by August, the 45-year-old said in a phone interview.

“The Indian equity market is home ground for me and it is always good to play with a home advantage,” he said.

The S&P BSE Sensex and NSE Nifty 50 gauges have hit record highs this year, making local shares more expensive than a benchmark of developing markets.
The S&P BSE Sensex and NSE Nifty 50 gauges have hit record highs this year, making local shares more expensive than a benchmark of developing markets. Bloomberg News

Khemka is seeking to raise money at a time when the gap between elevated Indian asset prices and anemic earnings growth has spurred brokerages including UBS to warn about unfettered optimism in Asia’s fourth-largest stock market. The S&P BSE Sensex and NSE Nifty 50 gauges have hit record highs this year, making local shares more expensive than a benchmark of developing markets.

“Valuations have to be seen based on where we are in the cycle, and in my view the chance of above trend-line growth is higher than a chance of it falling below,” Khemka said. Investors are more concerned about global uncertainties, such as the political situation in developed markets, than India-specific problems, he said.

Khemka started his career at Goldman Sachs’ U.S. equity business in 2000. He went to Mumbai six years later to set up the India business. The $2.4 billion India Equity Portfolio has returned 17.5% annually over the past five years, beating 76% of its peers. The S&P BSE Dollex-30 Index, the dollar-linked version of the Sensex, has risen 10% a year in the same period.

The two funds will invest in shares of up to 40 companies across sectors, Khemka said. The funds are less likely to invest in commodity, telecom and state-run companies, he said.

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Fixed income has posted steady returns in these markets, while once high-flying equities have come crashing down.

Domestic and foreign funds have this year poured a combined $12.5 billion into local shares even though the impact of a single nationwide goods and services tax — India’s biggest tax overhaul since independence in 1947 — remains to be seen. The Sensex is up 17% this year, the region’s best performer after Hong Kong’s Hang Seng Index and the Philippines Stock Exchange PSEi gauge.

The tax, to be introduced on July 1, is projected to boost government revenue and improve the ease of doing business in the world’s largest democracy by getting rid of a web of levies divided among various city, state and federal governments.

“There’s lot of interest from foreign investors in Indian equities now as their expectations about the pace of reforms have gone up after the decision on the goods and services tax,” Khemka said. “They’re looking at it as the biggest reform of this century in India.”

Bloomberg News