Ashoka India Equity lags index and discount widens – Over the period from launch (on 6 July 2018) to 31 December 2018, Ashoka India Equity lagged its benchmark, returning -8.7% in share price terms and -0.3% in NAV terms versus a 3.1% return for the MSCI India IMI Index.
The chairman says that the main reason for the underperformance was that the fund was holding cash (following the IPO) at a time when the market was rising. Since the end of the reporting period, the discount has been eliminated and today it sits on a 1.1% premium.
The chairman has also reminded investors that the company has a redemption facility. Shareholders will be entitled to request the redemption of all or part of their holding on an annual basis. The first redemption point will be 30 September 2019. The directors have absolute discretion to operate the annual redemption facility and to accept or decline in whole or in part any redemption request.
Shareholders are reminded that this facility’s principal purpose is to help the Board limit discount volatility and investment in a Company of this nature should only be considered if it is understood that the significant growth potential of the Indian equity market is likely to be achieved over the longer term.
Extract from the manager’s report
“Since the IPO, some of our holdings in the Speciality Chemicals and Information Technology industries contributed positively to our performance.
One of the top contributors was Fine Organic Industries (FOIL), the largest manufacturer of oleochemical based additives in India with a 90% market share. We like FOIL for its distinct competitive advantage arising from high industry entry barriers and its high quality management team that continues to deliver strong growth while maintaining a superior return on incremental capital.
L&T Technology Services (LTTS), which we consider to be one of the best engineering and R&D services companies globally was also a strong contributor. We like LTTS for its capabilities across its operating sectors as well as its cash generative abilities and its focused and experienced management team that continues to drive industry leading profitable growth.
Infoedge India was also an important contributor. Infoedge’s Naukri.com and 99acres.com websites are India’s premier jobs and real estate classifieds businesses respectively. It has also made highly successful investments in Zomato, India’s leading food delivery platform and Policy Bazaar, an online insurance aggregator. We like Infoedge for its dominant market position in the fast growing online classifieds industry and for its entrepreneurial management that has a long track record of prudent capital allocation.
Some of our investments in the Health Care and the Consumer Discretionary sectors detracted from our performance.
Dishman Carbogen Amcis (DCA), a fully integrated contract research and manufacturing services provider to pharmaceutical companies globally, was amongst the largest detractors. The company underperformed due to muted growth arising out of capacity constraints as well as the general sell-off amongst small/mid-caps. However, given their strong innovation pipeline and ramp-up in operational assets, our view remains positive on the holding.
Maruti Suzuki, the dominant passenger vehicle manufacturer in India, was another detractor. The company was negatively impacted from a broad decline in auto sales across the market in the second half of 2018. Our view remains positive on the company due to its powerful brand, dominant position in the under penetrated passenger vehicle market and strong execution through the cycle relative to its peer group.
Another detractor from performance was Balkrishna Industries, which is globally the most profitable manufacturer of off-highway tyres (OHT). The stock underperformed in the second half of 2018 due to a drought in Europe that impacted agricultural tyre demand and higher capex at the company’s US division. In our view these issues are transient and therefore we remain positive about the future prospects of the company.”
AIE : Ashoka India Equity lags index and discount widens