Ashoka India Equity (AIE) is to pay its first dividend since launch seven years ago after shielding investors from the turmoil of US President Trump’s chaotic tariffs policy.
Annual results yesterday showed the £470m investment trust emerged essentially unscathed from the turbulence caused by Trump eventually slapping a 25% tariff on India’s imports along with an additional 25% “penalty” for buying Russia’s oil.
The portfolio of 163 holdings dipped 0.2% in the year to 30 June against a 6.6% drop in the MSCI India Investable Market (IMI) index. Meanwhile the shares slipped 0.9%.
It was a contrast to the previous year when the shares shot up 35.9% on the back of a 35.5% surge in net asset value (NAV), although that was less than the benchmark’s 37.7% advance.
Fee for outperformance
The 6.8% outperformance of the index in the latest financial year means the trust has set aside £16m to pay fund manager Acorn Asset Management. Unusually, Acorn, which was founded by the trust’s lead manager Prashant Khemka, does not receive a conventional fixed annual management fee that is paid regardless of performance. Instead, Acorn is only paid when the portfolio beats its index over three years, receiving 30% of any outperformance.
The pure performance fee approach has been good for both shareholders and Khemka’s firm given that since flotation in July 2018 up to 30 June Ashoka India’s NAV rose by 167.8% versus the 123.6% gain in the index.
Over five years to yesterday the trust generated a 131.6% total shareholder return, according to the Association of Investment Companies. That ranked it second in its four-strong sector, just behind the 135.5% of rival India Capital Growth (IGC).
Ashoka India’s impressive performance has until now not included a dividend as the long-term growth fund prioritises capital returns over income and uses what investment revenues it receives to cover running costs.
However, in the past year portfolio companies have increased their payouts to return excess cash to shareholders, leaving the trust with no choice but to pay a 0.5p per share dividend later this month to comply with investment trust rules.
More in private companies
In another change, the board has agreed to lift the 12% limit on unquoted companies to 15% after its investments in this area jumped from £2.6m to £32.3m. It currently has six private companies: Veeda Clinical Research, Simpolo Vitrified, Ellenbarrie Industrial Gases, Manjushree Technopack, Sudeep Pharma and Sambhv Steel Tubes.
Propping up performance during the year was a 55.6% rally in OneSource Specialty Pharma which rose to a 4.1% position after breaking into profit and exciting investors with a $100m growth plan.
Other strong stocks were telecom provider Bharti Airtel, up 25.5% on a view it would be most resilient to tariffs in its sector; and Cholamandalam Financial Holdings, 33.7% higher on the solid performance of its extensive car insurance and mortgage businesses.
However, these gains were offset by falls in other stocks such as the 27% decline in Pepsi Cola bottler Varun Beverages whose growth in recent quarters had disappointed the market; and Grindwell Norton, a manufacturer of grinding wheels, which tumbled 43% as growth slowed in some of its segments and faced stiff competition from imports.
India “on the cusp”
Khemka, who has a new co-manager in former Goldman Sachs colleague Hiren Dasani to help him sift through India’s under-researched smaller companies, was confident prospects for India’s “powerhouse” economy remained intact after a relatively “lacklustre” year.
He said there were signs the slowdown of the last year was bottoming out and US tariffs, while unhelpful, affected only 2% of gross domestic product with software, electronics and pharmaceuticals currently exempt.
None of this detracted from India’s considerable strengths, he argued, particularly after massive infrastructure investment by the Modi administration. “India is at the cusp of realising its true economic potential with young demographics, superior corporate profitability and megatrends of digitalisation and formalisation emerging as the structural drivers of the India growth story,” he said.
Our view
Matthew Read, senior analyst at QuotedData, said: “Although Ashoka India Equity’s NAV has dipped slightly this year, these are nonetheless a good set of results with AIE providing decent outperformance against a backdrop of tough markets, allowing it to extend its cumulative outperformance since launch to nearly 90 percentage points. This performance illustrates the strength of its stock-picking which, in conjunction with its pure performance-fee model, has kept demand for its shares strong.
“This ongoing demand has been a significant factor in driving its assets from £30m to around £450m in seven years. This growth has been impressive and has earned AIE its promotion to the FTSE 250. While the pure performance-fee only model has helped keep overall fees down, it can make the fees lumpy. However, this is a trade-off that most shareholders seem happy to accept while results remain strong.”
