With sobering reports surrounding India's rise in infections appearing in the press on a daily basis, it is hard to look beyond this second wave, says David Cornell.
However, while it is evident that India has problems with its health infrastructure and it is these that dominate the headlines, it is important to remember the economic progress that has been made in the recent past - factors that should support a strong recovery as it emerges from the current crisis.
A crucial difference between India's second wave, and those that we have seen elsewhere in the world, is that we now have added comfort from the vaccine.
We hope that the current crisis will act as a catalyst for necessary change."
It is still early days, and with a population of 1.3bn India has a significant challenge ahead, but with 40% of the over-45 population having received at least one dose there is progress.
India's reputation as the world's pharmacy puts it in good stead, and forecasts suggest that it will triple its production capacity by December this year.
The government's decision not to impose a nationwide lockdown such as the one last March, instead favouring localised lockdowns and curfews, has allowed economic activity to keep moving, albeit with interruptions.
While economic activity has slowed as anticipated, the path to recovery will be more predictable than that following the first wave lockdown
It may be too soon to call this a short-term set back, however as long-term investors in Indian equities our view on India's growth prospects remains optimistic.
At the beginning of this year, IMF forecast India to be the fastest growing large economy in FY22 and FY23 at 11.5% and 6.8% respectively.
This was then followed by the Government of India's Union Budget which set out an ambitious spending plan to boost the country's infrastructure and reenergise economic growth.
The second wave will cause minor delays here, but the long-term plans are still in place.
So too are Modi's efforts to make India an attractive destination for foreign investment.
Headway has already been made, evidenced by the World Bank sponsored "Ease of Doing Business" Index on which India has moved from 134th in 2014, to 63rd in 2020.
Foreign Direct Investment flows followed suit, reaching all-time highs in 2020 and goliaths such as Samsung, Apple and Amazon have begun shifting production to India.
From an investment manager's perspective, these are all themes that we expect to continue as India emerges from its second wave, and for now at least the market remains resilient. Whereas last year we saw the BSE 500,
India's large cap index, fall 37% in just one month, with this wave the markets have so far remained buoyant, coming off just 2% from their highs in March (in Dollar terms).
This is even more evident in the mid and small cap market, where the India Capital Growth Fund is positioned, with the fund's benchmark remaining flat over the same period.
Covid has undoubtedly brought about significant challenges, and while India is in the midst of a particularly testing period, corporate India has demonstrated both adaptability and resilience.
In the pandemic year, India Capital Growth's portfolio earnings growth was expected to be negative but by March's financial year end, investee companies' profits enjoyed a sharp recovery, ending the year 39% higher year over year.
Future prospects look equally compelling, with FY22 (April 21 to March 22) earnings currently estimated at 35% for the portfolio.
With that said, this continues to be a distressing time for India and the country is feeling the effects of having historically underinvested in health and education.
We hope that the current crisis will act as a catalyst for necessary change and increased focus in these areas.
David Cornell is managing director & chief investment officer for the India Capital Growth Fund.