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Ashoka India Equity has another year of strong outperformance

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Ashoka India Equity (AIE) has released its annual results for the period ending 30 June 2023:

  • Over the 12 month period AIE reported a NAV total return of 18.3% and share price total return of 19.4%. This represents an outperformance relative to its benchmark, the MSCI India IMI Index, which returned 11.8%. This also marks the fifth annual results for AIE.
  • AIE’s investment manager attributes its outperformance to its “very well diversified and balanced [portfolio] across both cyclical and counter-cyclical sectors while consciously avoiding market timing, sector rotation and other such top-down bets.” Major contributors include Kaynes Technology, a fully integrated electronic manufacturing service company; Cholamandalam Investment and Finance, a non-bank financial firm with a strong rural and semi-urban presence, and ICICI Bank, one of India’s leading private sector banks.
  • AIE traded at a premium over its financial year, allowing the board to issue 5.2m new shares, equal to 5% of the current circulation, and raising £10.7m in new capital for the trust.
  • No dividend was declared for the year.
  • AIE operates a redemption facility on an annual basis, with all 547,339 valid redemptions shares being redeemed for the financial year.

The team at Acorn Asset Management, Ashoka’s investment management firm, commented:

“India’s economy delivered solid, above expectation GDP growth of 7.2% for the fiscal year to March 2023. Its healthy macro-fundamentals, resilient corporate earnings as well as promising growth prospects – garnered strong foreign and domestic investment against a global back drop of geopolitical tensions, higher commodity prices and credit costs, as well as fears of a recession in the US and Europe.

“India’s economy is experiencing the start of a growth phase as ingredients for a revival in the investment cycle seem to be in place. The twin balance sheet problem (overleveraged corporate balance sheets and high non-performing assets (“NPAs”) of banks) which held back private investments in the last decade seem to be behind us. Corporate debt is at its lowest in many years and banks are enjoying one of the lowest bad-loans ratios in the last decade (gross and net bank NPA ratios stand at 3.9% and 1% respectively). This provides a conducive environment for private sector capex to pick up from here.

“India offers a diversified sector exposure relative to its international peers, with a good mix of cyclical and counter cyclical businesses. Our approach has always been to maintain a balanced portfolio, to ensure that our portfolio’s performance is driven by stock selection rather than non-stock specific risk factors such as market timing, beta, sector rotation and so on.

 “In view of these positives, the broader Indian equity market has seen a recovery rally since April 2023 and valuations are back to 23x (FY24 P/E multiple), as compared to the 10 year average of 19x for BSE Sensex. Although the market seems expensive, in the last 10 years, bar a few instances during market corrections between 2016 and 2020, India has consistently traded at a premium relative to other emerging markets. We never take a call on aggregate market valuations. What we are looking for are attractively valued businesses on a relative basis.

“Separately, from a potential risk perspective, general elections in India are likely to be held in April or May 2024. Although the current Prime Minister’s popularity remains intact, and the risk of regime change appears low, such an event or a weak coalition government could be a negative surprise for the market. The markets would like to see policy continuity. Furthermore, any sustained weakness in global growth could weigh on market performance. On the other hand, a sharp reversal in anticipated global risk factors such as inflation, recession, or geopolitical tensions could boost investor sentiment.

In conclusion, we remain optimistic and continue to believe the structural growth drivers of the Indian economy are deep rooted which, notwithstanding the near-term challenges, presents India as an attractive long-term investment opportunity.”

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