September, 2023
The Ellerston India Fund (EIF) was up 0.8% (net) in September, versus the MSCI India Index (MXIN) which was up 2.0%.
Global markets pulled back during September on concerns that central banks, most notably the US Federal Reserve (Fed), may raise interest rates further. Although the Fed kept policy rates on hold at 22 year highs of 5.25-5.50% during September, it left the door open for another rate hike later this year. Fed officials also indicated that rates could stay higher for longer throughout 2024 than they had previously anticipated. Confirmation of potential further upside in interest rates led to a spike in US 10-year yields, to a 17 year high of 4.8%. The USD also rallied by ~2.5% during the month. Historically, a stronger USD has been negative for flows into Emerging Markets (EM) and indeed this was a headwind throughout September. All Asian markets, with the exception of India and Philippines (+2.4%) were down last month.
The Indian market performance is notable given it has outperformed most major indices over the past 3 months, despite a ~30% rally in the oil price. India imports -80% of its oil requirements, so a higher price is typically negative for the current account balance and a potential headwind for economic growth. As we have previously highlighted, the resilience of Indian equities however has been driven by a number of idiosyncratic factors. First is robust domestic demand, with indicators such as PMI (60.9 inSeptember) and credit growth (+15% yoy in September) pointing to a healthy economic environment. The second is India's ability to purchase cheap Russian oi, albeit this discount has narrowed in recent weeks. This, along with solid tax collections (+12% yoy in the past 12 months) has helped fund a lift in government capex (+48% yoy in FY24YTD). The third is the stability of the currency, which has been driven by the Reserve Bank of India's (RBI) willingness to defend the currency and strong inflows from foreigners. Indeed, over the past 3 months the RBI has reduced its foreign exchanges reserves by ~US$22bn. Meanwhile, over the past 6 months, foreign institutional investors have net bought -US$19bn of Indian equities, which is the fastest pace in 3 years. For foreign investors, India remains one of the very few countries globally that offer both a structural growth story and near term-economic tailwinds. As such, despite the Indian market trading at an optically high multiple of 20x forward PE, earnings growth is expected to be robust (i.e. high teens) over the coming year. Within India, we are positioned in sectors such as financials (HDFC Bank, ICICI Bank), consumer (Maruti Suzuki, Phoenix Mills), healthcare (Max Health) and industrials (Reliance Industries) that leverage India's domestic demand and infrastructure buildout tailwinds.
An important development during the month was the inclusion of India into the JP Morgan EM Bond Index. It is estimated that this will lead to US$20-30bn incremental inflows from investors from June 2024 onwards. This development could pave the way for India to beincluded into other EM or Global bond indices, which could add a further US$10-20bn of additional inflows. Whilst this event is notbdirectly linked to equities from a flow perspective, Indian financial institutions could benefit from a potential reduction in wholesale funding costs. Overall, we view this as another major step in increasing the relevance of India as an investment destination.
Other developments to watch in the coming weeks are the outcome of five state elections, namely Madhya Pradesh, Chhattisgarh, Rajasthan, Telangana and Mizoram. The results will provide some read-through on voters thinking going into the General Election in S2024. The other is India's agricultural production given monsoon rainfalls in 2023 have been running at a five-year low due to El Nino weather pattern Bath events will determine the likelihood of additional populist measures over the coming months.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2309_Ellerston-India-Newsletter.pdfAugust, 2023
The Ellerston India Fund (EIF) was up 0.5% (net) in August versus the MSCI India Index (MXIN) which was up 2.1%. We note that the index was down 1.4% in local currency terms for the month, but a stronger Indian Rupee against the Australian Dolar (AUD) meant that the currency was a tailwind for absolute returns.
The Indian market pulled back from all-time highs during the month, following the lead of global markets which were dragged down by concerns of further tightening by central banks and economic weakness from China. We view this as a healthy pullback for Indian equities and the market remains on track to post its fifth consecutive year of positive retums. This view is confirmed by positioning, solid economic data and corporate earnings.
Firstly, research conducted by Jefferies indicate that global investors are only about 100bps overweight India relative to their respective benchmarks. This is despite foreign institutional investors (Fils) pouring USD$23bn into Indian equities over the past 6 months, including US$3bn in the past month. As such, there is scope for further inflows from Fils given India remains one of the very few countries globally that offer both a structural growth story and near-term economic tailwinds.
Indeed, India reported June quarter real GDP growth of 7.8% yoy, which reaffirmed its status as the fastest growing major economy in the world. The strength of India's economy in recent times have been driven by investments with gross domestic fixed capital formation growing by 8% yoy in the June quarter. Private sector investment intentions suggest further strength in this capex cycle, with annualized new private project announcements up by -70% yoy over the past 12 months. Consumption has also been resilient despite a volatile inflation backdrop (core CPlat 4.9% in August) and 250bps of interest rate hikes over the past 18 months. Private consumption grew 6% yoy over the June quarter. Strong recent credit growth data (+15% yoy in August) suggests recent positive consumption trends are likely to continue.
The positive economic data has translated into solid earnings growth for corporates. Indeed, during the June 2023 quarter reporting season, corporate India recorded earnings growth of ~30% yoy. Among sectors, Autos, Healthcare, and Industrials surprised positively on earnings. Consumer Discretionary and Financials reported strong earnings growth, though largely in-line. Meanwhile, IT services names: disappointed due to an uncertain demand outlook overseas. Consensus continues to forecast forward earnings growth of -18% yoy.which looks reasonable against a forward PE of ~21x.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2308_Ellerston-India-Newsletter.pdfJuly, 2023
The Ellerston India Fund (EIF) was up 1.8% (net) in July versus the MSCI India Index (MXIN) which was up 1.7%.
As highlighted in the performance summary table, the accrual of taxes continue to have a material impact on portfolio performance. We note that during the month, we recognized a positive adjustment in the tax accrued by the fund, which led there to be a minimal net tax impact in the July numbers.
The Indian market was buoyed by risk-on sentiment globally, driven by further evidence of moderating inflation, and better than expected earnings out of the US. This led to foreign institutional investors (Fils) purchasing an additional US$3bn of Indian equities over the month. So far in 2023, Fils have injected ~US$16bn of capital into the Indian market, which would make it the strongest start to a calendar year in over a decade. Not to be outdone, domestic investors put US$0.9bn of liquidity into the Indian market in July and have been net buyers in six of the past seven months.
India has been one of the best performing markets in Asia in 2023, with the MXIN up 6.9% in local currency terms. Investors have appreciated the stability offered by India's growth story and the supportive policy setting environment. Indeed over the past month, the Reserve Bank of India (RBI) kept policy rates on hold at 6.5% for a third successive meeting whilst maintaining its FY24 GDP growth forecast of 6.5%. Although inflation moved up to 7.4% in July, due to a sudden rise in food prices, the RBI has signaled an intention to 'look-through temporary price shocks and continues to forecast FY24 CPI (of 5.4%) to be within its 2-6% target range. Furthermore on growth, the IMF recently upgraded Indio's 2023 growth target to 6.1% (vs 5.9% previously) citing the robust domestic investment environment. High frequency data meanwhile remains positive, with PMI (61.9 in July) and vehicle registrations (+10% yoy in July), confirming a solid demand environment. Within EIF, we are positioned in sectors such as financials (HDFC Bank, ICICI Bank), consumer (Varun Beverages, Maruti Suzuki, Phoenix Mills), healthcare (Max Health) and industrials (ABB India), which are leveraged to India's domestic demand and infrastructure buildout stories. Conversely, we are underweight offshore earners such as IT services.
An interesting development in the Indian market during the month was the formal completion of the merger between HDFC Bank and HDFC. HDFC Bank now becomes a financial behemoth with a US$150bn market cap, making it the 7th largest lender in the world. Despite its size, we believe the merger can still add significant shareholder value over the next few years given the potential synergies. For instance, the merger will allow HDFC Bank to combine its relatively lower cost of fundingwith HDFC's leading mortgage book to offer more competitive personal loan products. The merger will also provide significant cross selling opportunities, given 70% of HDFC customers currently do not bank with HDFC Bank. These factors, along with structural tailwinds from rising disposable income and increasing penetration of financial services across India, should drive high quality double digit earnings growth. ROE is also likely to improve over time from the current -15% (pro forma) levels. Valuations meanwhile look reasonable at 2.2x P/B and 17x PE. HDFC bank remains one of the largest and core holdings in our portfolio: Activate Windows
July also saw the start of the June quarter reporting season and thus far, results have come in broadly in line. Earnings forecast have been cut by -0.5% with weak tech results offset by strength from domestic cyclicals leveraged to the capex upcycle, and financials. Consensus continues to forecast 12 month forward earnings growth of ~18% yoy vs forward PE of -20x.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2307_Ellerston-India-Newsletter.pdfJune, 2023
The Ellerston Indio Fund (EIF) was up1.4% (net) in June versus the MSCI India Net Return Index (AUD)which was up 1.8%.
The Indian market continued to grind higher, driven by strong foreign inflows and robust economic data. Indeed, foreign institutional investors (RI) were net buyers of another USS8bn of equities in June. Over the post three months, Flls have poured USS15bn d liquidity into the Indian market, which is the strongest quarter of inflows in 3 years.
On the economic front, high frequency indicators such as PM! (59.4 in June), credit growth (+14% YoY in June)and vehicle registrations (+10% YoY in June) remain healthy. Meanwhile, India's current =aunt deficit (CAD) narrowed significantly to 0.2% of GDP in 4QFY23. This is the lowest in 2 years and was helped by an improved trade balance and positive setvicetilths exports. Finally, the latest inflation reading ca me in at 4.8% and comfortably within the Reserve Bank of India's (RBI) 2-6% target range. This should allow the RBI to keep rates on hold at 6.5% for the foreseeable future. A more benign inflation outlookond interest rate stability provides o less volatile backdrop for investors into India.
Another positive development during the month was the decision by the Indian government to hike the Minimum Support Prices (MSP) for Kharif crops (monsoon or autumn crops) by 7.8% YoY for FY24. This MSP hike was the second highest increase since FY14 and the largest in 5 years. An increase in the MSP is likely to improve rural demand for autos, industrials (piping), materials (cement) and theconsumer staples categoric. We see this policy as part of Prime Minister Modi's populist agenda ahead of the general elections next year. The Government has already handed down o pro-cyclical budget for FY24 where capex was forecast to increase by 18% YoY. We expect further supportive policies to be announced in the coming months. This again should be positive for Indian equities.
We remain cautiously optimistic on the Indian market in the near term with a forward PE of 20x, backed up by forecast earnings growth of —19%. The EIF portfolio is currently skewed towards financials, consumer, healthcare and industrial sectors which provide exposure to India's domestic demand and infrastructure buildout stories. The portfolio is also holding —'8% cash providing dry powder to take advantage of opportunities incase of a pull back.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2306_Ellerston-India-Newsletter.pdfMay, 2023
The Ellerston India Fund (EIF) was up 4.2% (net) in May versus the MSCI India Index (MXIN) which was up 5.1%.
This was the third consecutive up month for the Indian market and was driven by the release of positive economic data and the conclusion of a solid 4QFY23 reporting season.
On the economic front, India reported 4QFY23 GDP growth (+6.1%yoy) that was significantly ahead of market expectation of —5-5.5%. This meant that India achieved GDP growth of 7.2% in FY23, which ranked amongst the fastest of any major economy in the world. inflation meanwhile came in at a 25-month low of 4.25% in May. With inflation having peaked and now comfortably within the Reserve Bank of India's 2-6% target, this allows the central bank to keep rates on hold for some time barring a sharp uptick in global inflationary pressures. This therefore creates an ideal backdrop for India to continue achieving global leading economic growth in FY24.
May also saw the end of Q4FY23 earnings season, with corporate India recording revenue and earnings growth of +14%yoy and +20%yoy respectively. The positive operating leverage exhibited by corporates was driven by more benign costs environment. Consumer Discretionary, Communication Services, Healthcare and Financials were the standout sectors from a growth and earnings revision, while Materials and Information Technology were the weakest. EIF portfolio companies performed commendably with the majority beating or in-line with market expectations. The portfolio companies recorded median revenue and earnings growth of +18%yoy and +21%yoy respectively in 4QFY23.
The positive read-throughs from recent economic data and corporate earnings have driven renewed interest in India as an investment destination. Indeed during the month, foreign institution investors (FII) purchased US$5.4bn of Indian equities, whilst domestic mutual funds returned to being net buyers. India is forecast to record GDP and earnings growth of +6.5%yoy and +20%yoy respectively in FY24. This is likely to look increasingly attractive in a world where growth is becoming scarcer and we believe further inflows into the Indian market is likely. The only pushback on the India investment story is the valuations with the MSCI India trading on —20x forward PE. This leaves little room for error for many Indian corporates. As such, we are taking a cautious approach to investing in India and prefer high quality companies across the financials (HDFC Bank, ICICI Bank), consumer (Varun Beverages, Maruti Suzuki), healthcare (Max Health) and Industrial (ABB India) sectors that provide exposure to India's domestic demand and infrastructure buildout story.
Finally, in an interesting development for the month, the Indian government announced withdrawal of INR2000 notes from circulation on 19th May. This is the largest currency note in circulation and was introduced in Nov 2016 a part of the demonetization program. The note will remain a legal tender and can be exchanged or deposited in bank accounts until September 30, 2023. Based on what we've seen post demonetization in 2016, the liquidity from this note removal could eventually find its way into mutual funds and the domestic equity market in the coming months.
File:April, 2023
Financials and Communication Services were the largest contributors to alpha during the month. Whilst, Information Technology and Industrials were the largest detractors. At company level, Tata Motors, State Bank of India (SBI) and Phoenix Mills were the key alpha contributors. Tata Motors is benefiting from a stronger product cycle in India with many of its passenger vehicle (PV) and electric vehicle (EV) models gaining good traction.
The company saw PV volumes accelerate to +14%YoY during April. Further, the market was enthused by Jaguar Land Rover’s commitment during the month to invest GBP15bn into its EV program over the next five years. The SBI share price has recovered following concerns about its exposure to the Adani group of companies, which appear overplayed. The company has disclosed that that Adani related exposure is ~0.9% of its total loan book and backed by cash generating assets. Meanwhile, SBI has exhibited steady improvements in its core metrics including NIMs, cost structures and ROA/ROE. Finally, Phoenix Mills was boosted during the month by the surprise decision from the RBI to keep the repo rate on hold. The share price was also boosted by a favourable broker initiation which highlighted the company’s high quality destination mall portfolio, expansion opportunities and strong balance sheet.
Infosys, Tech Mahindra and Hindustan Unilever were the key detractors for April. Both Infosys and Tech Mahindra reported softer than expected 4QFY23 results due to project delays/cancellations and muted new deal wins. Forward guidance was also below expectations with Infosys expecting only 4-7% topline growth in FY24 due to uncertainty in the customer demand outlook, particularly in North America. As a result of these disappointing results, we believe there are better opportunities in companies with greater exposure to India’s domestic demand story. As such, we exited Tech Mahindra during the month and reduced our position in Infosys.
Hindustan Unilever also reported a subdued 4QFY23 result with revenues and earnings growing 11% and 10% respectively. Management however provided constructive outlook commentary with demand recovery and margin tailwinds from lower raw material costs to provide tailwinds for earnings in upcoming quarters.
File:March, 2023
The Ellerston India Fund (EIF) was up 0.81% (net) in March versus the MSCI India Index (MXIN) which was up 1.85%. For the March 2023 quarter, EIF was down 2.4% compared the MXIN which was down 5.2%.
March was a volatile month for Indian equities with the banking turmoil in the US and Europe and concerns over global contagion risk weighing on returns early in the month. This was followed by a strong rebound after measures to stabilise the financial sector were announced. The domestic market was also helped by a recovery in Adani related stocks following reports of an investment by a prominent overseas investor.
The Indian market has retraced by HO% from the peak in December 2022 and has underperformed most global indices in 2023. We however continue to view the recent correction as a healthy pullback given the market's relative outperformance in 2022 and previously elevated valuations.
The positive domestic demand story meanwhile, remains intact as evidenced by recent PMI (manufacturing 56.4, services 57.8), credit growth (+16%YoY), housing (property sales +14%YoY from Jan-Mar) and consumption (vehicles sales +14%YoY) data. Furthermore, the stabilization in oil prices in 2023 have alleviated near term inflationary pressures. Indeed, the latest CPI reading of 5.66% is back within the Reserve Bank of India's (RBI) 2-6% target band and the central bank has projected inflation to fall further to 5.1% in 1QFY24. The improving outlook for inflation has allowed the RBI to turn incrementally less restrictive by keeping the policy rate on hold at 6.5%. Robust domestic demand coupled with a less hawkish monetary policy outlook provides a more favourable backdrop to achieve the RBI's GDP growth forecast of 6.5% in FY24, which would make India the fastest growing major economy in the world over the next 12 months.
On the external risks presented by the recent collapse of Silicon Valley Bank, Silvergate Capital and Signature Bank in the US, we see limited impact to Indian banks. Domestic banks such ICICI Bank and HDFC Bank have more diversified and less risky liability and asset exposures than their US peers. Further, Indian banks are bound by much stricter regulations around capital and liquidity and regulators provide more comprehensive deposit insurance coverage than their overseas counterparts. As such, we see any contagion risk from the banking turmoil overseas as manageable.
The recent correction in Indian equities has seen valuations move back to a more reasonable level with the MXIN trading at 19x forward PE. This looks inexpensive compared to earnings growth for the Indian market of 19% over the next 12 months. We have therefore used the recent market weakness as an opportunity to increase exposure to high quality companies in the consumer and industrials sectors.
File:February, 2023
The Ellerston India Fund (EIF) was up 0.7% (net after tax) in February versus the MSCI India Index (MXIN) which was down 0.3%. Indian market stayed weak through February reverberating under the Adani Group companies’ sell-down that started in January. Foreign Institutional Investors remained net sellers of A$1bn whereas domestic investors deployed their cash reserves buying A$3.5bn into the market weakness. Retail equity inflows in February were one of the highest seen in recent months, as local investors stay buyers at dips. The underlying Indian economy is still chugging along well with 4.4% GDP growth in the October-December quarter, in-line with Reserve Bank of India (RBI) and market expectations. GST collection had another good month up 12% YoY. Government Capex has also been strong growing at 60% YoY over April to January FY22 with greater emphasis on roads, railways, and water resources. In its February meeting, RBI raised repo rate by another 25bps increasing the repo rate to 6.5%, a total of 250bps increase since May 2022. February CPI is still high at 6.4% though in-line with market expectations but above the RBI tolerance band. Market expectations are of another 1 or 2 rates hikes of 25bps before RBI takes a pause. The recently ended third quarter (October-December) results season was solid with 20% adjusted earnings growth. Financials had a stellar quarter with decadal-high NIMs and decadal-low credit costs leading to robust ROAs. The consumer sector did have some weakness with a mix of factors (pent-up demand normalizing, inflation, seasonality) hurting demand but margins were strong as RM costs deflated. We expect the slowdown in discretionary demand to be a short cycle and expect headwinds to get absorbed in coming quarters. IT/ITES sector reported a decent quarter with in-line US Dollar revenue growth but surprised positively on operating margins as attrition and subcontracting trends came in better than expected. Domestic cyclicals like Cement, autos and cap goods also reported strong results primarily benefiting from improved margins.
File:January, 2023
The Ellerston India Fund (EIF) was down 3.9% (net after tax) in January versus the MSCI India Index (MXIN) which was down 6.6%. The Indian market underperformed global indices during the month driven primarily by a short seller report against the Adani Group. This triggered selling of Adani related companies by local (mostly retail) investors as well as rotation by foreign investors out of India towards China/HK reopening plays. Indeed, foreign institutional investors net sold ~A$5bn of Indian equities during the month, which is the largest outflow since June 2022.
Domestic mutual funds provided some support to the market and net bought ~A$3bn of equities. But that was not enough to arrest the market decline. At this stage, we view the correction in Indian equities during January as a healthy pullback given the market’s relative outperformance in 2022 and elevated valuations. We continue to appreciate India’s structural growth story which is driven by favourable demographics, rising penetration, technology leapfrogging and infrastructure/manufacturing investments.
We believe these drivers will likely play out irrespective of the outcome in the Adani saga, which we discuss in detail below. Indeed, recent economic data such as retail credit growth (+15%YoY in December), PMI (57.5 in January) and GST collections (+13%YoY in January) remain robust. Furthermore, the Indian Government handed down a pro-cyclical budget in early February with capex and nominal GDP earmarked to increase by 18%YoY and 11%YoY respectively in FY24.
Although the latest inflation reading of 6.54% in January was slightly ahead of the RBI’s 2-6% target band, CPI has shown signs of moderating in recent months. This is a decent setup for India to again deliver one of the best economic growth amongst major economies globally in 2023/24. As such, we will use any further meaningful correction to add to our portfolio of high quality companies.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2301_Ellerston-India.pdfDecember, 2022
Turning to December performance, Consumer Staples and Utilities were the biggest contributors to alpha, whilst Consumer Discretionary and Energy were our biggest detractors. As mentioned in our previous newsletters, we currently have a currency hedge in place on a portion of the EIF portfolio in order to help reduce currency related volatility. For the month of December however, the hedge contributed positively to portfolio performance. At a company level, Varun Beverages and HDFC Bank were the key alpha contributors.
Varun’s share price was boosted by passive inflows following its inclusion into the MSCI India Index. Meanwhile, its business continues to perform well across all product lines including its recently launched energy drink Sting. HDFC Bank’s recent share price move reflect improving business fundamentals with the company reporting 3QFY23 net interest income and core pre-provision profit growth of 25%YoY and 19%YoY respectively. Further, MSCI has recently given much needed clarity on HDFC Bank’s index implications post its proposed merger with HDFC. Conversely, Reliance Industries and Tata Motors were the key detractors.
Reliance saw profit taking from investors during the month as the stock outperformed the MXIN by ~6% in 2022. The company’s value driving verticals of retail, Jio and new energy however continues to show good progress. The Tata Motors share price was negatively impacted by the surprise resignation of the Jaguar Land Rover (JLR) CEO in late November. JLR has subsequently provided a positive trading update in early January with volumes and order book both exhibiting growth and the business turning FCF positive in 3QFY23. Meanwhile, we continue to like Tata’s domestic passenger vehicles and commercial vehicles exposure particularly its presence in the electric vehicle market, where it holds an 80% market share.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2212_Ellerston-India.pdfNovember, 2022
The Ellerston India Fund (EIF) was up 1.4% (net after tax) in November versus the MSCI India Index (MXIN) which was up 0.4%. We note that the index was up 3% in local currency terms for the month, but a weaker Indian Rupee against the Australian Dollar (AUD) meant that the currency was a headwind for absolute returns. India has been one of the best performing markets in Asia throughout 2022, with the MSCI India (MXIN) Index up in excess of 5% in local currency terms.
The driver of the outperformance has been the resilience of the domestic economy in the face of high inflation, rising interest rates, elevated commodity prices and strengthening USD. During the month, we visited India for the first time since late 2019 in order to get a better understanding of the drivers behind the outperformance of the domestic equities market in 2022. Our discussions with corporates and government organisations along with various field trips reaffirmed India’s structural growth story with favourable demographics, rising penetration, technology leapfrogging and infrastructure/manufacturing buildout playing out in unison. A big driver of this has been the stable, pro-growth political environment since Prime Minister Modi came into power in 2014.
The recent state election result in Gujarat points to continuing political stability beyond the 2024 federal elections. Near term, the domestic demand outlook remains surprisingly strong particularly in urban areas driven by rising household incomes from positive real wage growth.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2211_Ellerston-India.pdfOctober, 2022
The Ellerston India Fund (EIF) was up 4.2% (net after tax) in October versus the MSCI India Index (MXIN) which was up 3.1%. As highlighted in the performance summary table, the accrual of taxes and currency fluctuations continue to have a material impact on portfolio performance.
We note that during the month, we recognized a positive adjustment (refund) in the tax accrued by the fund, which led there to be minimal net tax impact in the October performance numbers. October saw a strong up move in the Indian market driven by positive global sentiment and continued positive flows into domestic equities. India has defied the sharp downturn seen in other Asian markets most notably China and provided diversification and uncorrelated returns for equity investors this year. Indeed, India is the second-best performing marketin Asia (behind Indonesia) in calendar year 2022. We continue to believe that India’s structural growth story will increasingly stand out in a world where consistent growth is becoming scarce. Indeed, the high frequency data continues to validate the growth story. Gross GST collections reached the second highest on record in October and is up 23%YoY on a three-month rolling basis. This has helped to support government spending, with capital expenditure up 50%YoY in the 1HFY23.
We expect government capex to remain robust heading into the Federal Election in 2024. Domestic demand indicators also remain positive, with bank credit growth accelerating to ~17%YoYin October. Meanwhile, passenger and commercial vehicle sales were up 20% and 30% respectively last month. Finally, domestic air travel has recovered back to 84% of pre-COVID levels with October passenger volumes the highest since February 2021. Anecdotes suggest that domestic travel will stay strong heading into the year-end festive season. These indicators are supportive for our positions in the financials, consumer and materials sectors.
The key area of concern for the Indian economy remains inflation, with the October CPI reading coming in at 6.8%. Although this was the ninth consecutive month that inflation was above Reserve Bank of India’s (RBI) 2-6% band, it did moderate from the 7.4% reading in September. Thus far the domestic economy has absorbedthe 190bps of interest rate hikes by the RBI this tightening cycle without much issue. We however stay alert for any signs of a material slowdown in urban consumption and business activity. In the absence of a domestic demand or external shock, India is on track to meet the RBI’s FY23 GDP growth target of 7.0%. The resilience of domestic economy is reflected in the 2QFY23 reporting season, with sales and earnings (ex commodities) for the Indian market growing at 25%YoY and ~15%YoY respectively. Although operating deleverage was again apparent during the quarter due to elevated input costs, corporate comments suggest that margin pressure has begun to ease. Financial, consumer and industrial were the standout sectors from a growth and positive earnings revisions perspective. EIF portfolio companies reported commendably with 78% beating or in-line with market expectations and recording median sales and earnings growth of 18%YoY and 16%YoY respectively. We note that consensus is now forecasting 12 month forward EPS growth of ~17% for the Indian market. The market meanwhile trades on a forward PE of 22x, which remains above its long term average of ~18x. The margin of safety for investing in Indian equities has come down in recent months. As such, we are taking a more cautious and selective approach with regards to our investments.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2210_Ellerston-India-final.pdfSeptember, 2022
The Ellerston India Fund (EIF) was down 2.6% (net after tax) in September versus the MSCI India Index (MXIN) which was down 0.2%. We note that the index was down 4.1% in local currency terms for the month, but a stronger Indian Rupee against the Australian Dollar (AUD) meant that the currency was a tailwind for absolute returns.
As we have highlighted previously to the readers of this newsletter, currency fluctuations as well as tax do impact materially on portfolio performance. During the month, however, we took steps to address the currency impacts. EIF has been primarily unhedged since inception as it has been cost-prohibitive to do so. As of the start of September, the INR had depreciated against the AUD by 15% over this time. However, hedging costs for the INR have declined meaningfully over the past year as interest rate differentials between India and Australia have recently declined to ten-year lows. As such during September, we implemented a currency hedge for a portion of the portfolio in order to reduce currency-related volatility in EIF returns.
The Indian market saw a pullback in September amidst a rout in global markets driven by renewed concerns that persistently high inflation and rising interest rates, most notably in the US, will lead to a global recession. As we had mentioned in last month's commentary, the Indian market has been a relative outperformer in recent months and was approaching all-time highs and technically overbought. As such, we were not surprised by the 'healthy' correction during the month. The MXIN is currently trading at a forward PE of 23x and remains above its long-term average of 22x.
September saw Foreign Institutional Investors (FII) turned net sellers again after two consecutive months of net buying. Domestic Mutual Funds (DMF) meanwhile have continued to support the market and opportunistically bought the dips towards the latter part of September. We believe the catalyst for Fll selling in September was the reacceleration of inflation, with the latest reading coming in at 7.4% (vs 7.0% in August). In response, the Reserve Bank of India (RBI) hiked the repo rate by 50bps to 5.9% in its September meeting. Market expectation is for another 20-60bps of hikes by the end of this year. But we do not expect this to meaningfully derail India's positive growth outlook. Indeed, the RBI has only marginally downgraded its FY23 GDP growth forecast for India from 7.2% to 7.0%. This continues to compare favourably to other major economies such as the US, Europe, and Australia, which are predicted to grow at below 3% in 2023.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2209_Ellerston-India.pdfAugust, 2022
The Ellerston India Fund (EIF) was up 4.52% (net after tax) in August versus the MSCI India Index (MXIN) which was up 5.97%. Since mid-June, the Indian market is up 20% in local currency and has outperformed MSCI Asia, S&P 500, and the ASX 200 by 23%, 13%, and 12% respectively.
As highlighted in the performance summary table, the accrual of taxes and currency fluctuations continue to have a material impact on portfolio performance.
The return of foreign institutional investors (Hs) buying over the past two months has provided a welcome boost to the Indian market amidst global growth and inflation concerns. His had been net sellers for nine consecutive months prior to July. We believe that continued evidence of domestic demand resilience despite 140bps of interest rate increases over the past 6 months has been a primary driver of renewed interest by Hs. Indeed, India recorded a robust 13.5%YoY real GDP growth for the June 2022 quarter. As a result, India has officially overtaken the UK as the 5th largest economy. By the end of the next decade, India is expected to be the 3rd largest economy overtaking Germany in 2027 and Japan in 2030. We believe India's structural growth story will look increasingly attractive in a world where quality and consistent growth is becoming scarcer and this will help support the Indian market.
During the month there were a number of incrementally positive data points. Firstly, India's monsoon season has ended with cumulative rainfall 5% above LPA (long period average). Meanwhile, India's reservoir level is at 128% of the previous year. Both these factors should support the upcoming winter cropping season and bodes well for the agriculture-exposed names that we own such as UPL.
Another positive to emerge during August was the fact that India's CPI inflation has started to moderate. The July reading came in at 6.71% after hovering above 7% since April. This has increased expectations that the Reserve Bank of India (RBI) will deliver a more benign rate hike cycle despite hiking the repo rate by a further 50bps in August to 5.4%. Interestingly despite raising interest rates again, the RBI maintained its FY23 GDP growth forecast at +7.2%YoY. This highlights the central bank's confidence that inflation can be curtailed without a material slowdown in domestic demand.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2208_Ellerston-India.pdfJuly, 2022
The Ellerston India Fund (EIF) was up 6.0% (net after tax) in July versus the MSCI India Index (MXIN) which was up 7.7%. We note that the Indian market was up a very strong 9.6% in local currency terms, but a weakening Indian Rupee against the Australian Dollar (AUD) meant that the AUD was a headwind for absolute returns.
The Indian market was buoyed by: (i) the recent pullback in oil and commodity prices; (ii) the return of foreign institutional investors (FIIs) buying (+US$200m in July); (iii) stabilization of the INR against the USD on expectations that the US Federal Reserve (Fed) will moderate its pace of rate hikes; and (iv) a better than feared 1QFY23 reporting season. These factors supported a risk-on rally in domestic demand beneficiaries within the consumer, financial and materials sectors. Post the July rally, the MXIN is now back to within 6% of its all-time highs. The Indian economy has weathered the inflationary (July CPI at 6.7%YoY) and monetary tightening cycle (policy rate +140bps YTD) surprisingly well. Rising GST revenues (+24% YoY in the past 12 months) and a more stable currency (US$600bn in FX reserves) and access to cheaper oil from Russia has helped to alleviate macro pressures.
In addition, the Government has proactively introduced ad hoc measures to better manage its twin deficit and inflation headwinds. For instance, in the past 3 months the Government has introduced a 15% export duty on steel, imposed a windfall tax on diesel and gasoline exports and increased the import duty on gold. We view the pragmatic approach by the Government positively as it is intended to support end consumers by mitigating the impacts of inflation. The resilience of the domestic economy was further evident in the 1QFY23 reporting season where large consumer focused names such as Hindustan Unilever, Nestle and Asian Paints recorded solid volume growth despite the pass through of higher raw material costs. Similarly, Banks reported strong numbers with industry leaders like ICICI Bank, SBI, HDFC and HDFC Bank recording >15% YoY loan growth with stable NIMs and asset quality. The strength of the domestically focused companies is supportive of consensus expectations for 15% earnings growth in FY23 for the Indian market.
The market meanwhile is trading on a FY23 PE of 23x, which is reasonable given the structural high earnings growth relative to the rest of the world. Within the EIF portfolio we are most positive on the outlook for the domestic demand focused companies and in particular the industry leaders with pricing power across the consumer and financials sectors. We continue to have a decent weighting towards the IT services sector given the healthy top-line growth (+15% YoYon average in 1QFY23) driven by the ongoing focus on digital transformation by clients. However unlike the domestic focused companies, IT services firms have thus far struggled to protect margins due to significant wage cost pressures. Much of the wage pressure has been a result of hiring in order to fulfill strong order books. Indeed Indian IT services firms have hired over 300,000 new staff over the past 12 months. We believe that the margin pressure facing the sector is likely to trough in the next couple of quarters due to improved employee utilization and better control on non-employee costs.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2207_Ellerston-India.pdfJune, 2022
The Ellerston India Fund (EIF) was down 1.35% (net after tax) in June versus the MSCI India Index (MXIN) which was down 2.72%. June saw further weakness in the Indian market led by concerns around the global and domestic growth outlook. As highlighted in recent publications, the Indian economy continues to face a number of near term challenges such as slowing growth, high inflation, currency depreciation and a twin deficit situation. On growth, the World Bank recently cut its GDP growth forecast for India in FY23 from 8% to 7.5% citing rising inflation, supply chain pressures and spillover impacts from the Russia/Ukraine conflict. Inflation meanwhile remains elevated with the June reading at 7.01% and implies further rate hikes are likely in the near term. On the currency, the INR has depreciated against the USD by 7% since the start of 2022. The currency has however held up relatively well in light of a current account deficit that is forecast to rise to ~3.5% of GDP in FY23 (vs 1.2% in FY22) due to rising costs of oil, coal and gold imports. The budget deficit meanwhile is forecast to remain elevated at ~6.5% of GDP in FY23 (vs 6.7% in FY22). We believe these near term macro risks as well as optically high equity market valuations (MXIN 1 year forward PE currently at 19x) are key reasons for the consistent selling by foreign investors this year. Foreign Institutional Investors (FII) offloaded another ~US$9.5bn of Indian equities in June and have now withdrawn ~US$41bn from the secondary market since Oct'21. Retail investors and Domestic Mutual Funds (DMF) on the other hand continue to be net buyers during this period.
Despite the cyclical macro and flow related headwinds, it is important to highlight that the long term structural thesis for India remains in place. In particular, the benefits of Modi’s structure reform agenda are becoming increasingly apparent. For instance, the Government’s net tax revenues are up 32%YoY in the first two months of FY23 after rising 28%YoY in FY22. This has primarily been driven by rising GST revenues, which are up 34%YoY so far in FY23. We expect GST collections to further improve as the Indian economy becomes more formalized/organized. Structurally higher tax revenues should provide the government with additional financial flexibility to address near term challenges and also its longer term CapEx ambitions. On the corporate side, balance sheets have de-levered significantly over the past 5 years with net debt to EBITDA of the companies in the MXIN at 1.9x in 2021 (vs 3.3x in 2017). Household balance sheets meanwhile remain at very healthy levels with debt to GDP of 37% in FY21. Together with nominal wage growth which has been running at ~9%YoY, this bodes well for India’s domestic demand outlook.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2206_Ellerston-India.pdfJanuary, 2022
The Ellerston India Fund (EIF) was up 0.27% (net after tax) in January versus the MSCI India Index (MXIN) which was up 1.78%. As highlighted in the performance summary table, tax and currency continue to have a material impact on portfolio performance. January was a volatile month for the Indian market driven by global concerns over the pace of US monetary tightening and potential armed conflict between Russia and Ukraine. These two events have potential negative implications for Indian equities in the coming months. Firstly, a more aggressive pace of monetary tightening by the US Federal Reserve (Fed) could put upward pressure on the USD and lead to outflows from Emerging Markets as an asset class, including India. This in turn could force the Reserve Bank of India (RBI) to lift interest rates in order to stabilize the INR. Indeed, foreign investors net sold US$4.8bn of Indian equities in January, which was the highest since March 2020. Strong domestic inflows however have continued to support the equity market. The RBI meanwhile kept rates on hold with a dovish bias at its February policy meeting. We believe there will be increased pressure for the RBI to lift rates when the Fed begins its rate hike cycle in March 2022. We are currently overweight financials and in particular banks such as ICICI Bank, HDFC Bank and State Bank of India. Secondly on geopolitics, an armed conflict over Ukraine could see a surge in oil prices given Russia is the second largest producer of oil in the world. India imports ~82% of its oil requirements. So higher oil prices are negative for the country’s current account balance and a potential headwind for economic growth. Further, the inflationary pressures from higher oil prices could increase pressure on the RBI to tighten monetary policy.
Despite the offshore related risks, we remain optimistic on the outlook for Indian equities. The COVID situation across India has improved rapidly. The number of daily reported COVID cases has fallen to ~60,000 in early February from a peak of about 300,000 during January. This follows the course of other countries such as South Africa and the UK where the spread of the latest Omicron variant peaked over very short period of time. Encouragingly, there has not been a noticeable step-up in the case mortality rate over the past month. It therefore appears that COVID is turning endemic, which would minimize the risk of further disruptions to the economy.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2201_Ellerston-India.pdfDecember, 2021
The Ellerston India Fund (EIF) was up 1.15% (net after tax) in December versus the MSCI India Index (MXIN) which was up 1.17%. As highlighted in the performance summary table, tax and currency continue to have a material impact on portfolio performance. The Indian market rebounded sharply in the second half of December driven by further improvements in economic indicators and strong local mutual fund inflows (at US$4bn – highest on record). The solid market performance in December rounded off an exceptional year for Indian equities with the MXIN up 27.3% in local currency terms, which made it the best performing market in Asia. Heading into 2022, we are cautiously optimistic on the outlook for the Indian market with a number of secular tailwinds helping the continued cyclical recovery. These secular tailwinds such as attractive demographics (440m millennials), technological leapfrogging, rising incomes, strong job growth across services and manufacturing and historically low interest rates provide a positive investment backdrop for multiple sectors such as consumer, property, financials and IT services. We are currently overweight these four sectors.
Despite our optimism, there are a number of risks in the coming months that will need to be closely monitored. First is the spread of the Omicron COVID variant across India. The earliest case of Omicron in India was recorded in mid-December. Since then, daily COVID cases have risen to over ~200,000 in early January. Despite the surge in cases, the hospitalization rate thus far is half the level seen during the recent second wave. There has also not been a noticeable step-up in the case mortality rate over the past month. This gives us optimism that India will follow the South Africa, UK and Denmark examples where Omicron has proven to be more infectious, yet less deadly than previous mutations. Nonetheless, there is the possibility that localized restrictions are re-implemented to contain the spread of Omicron. We however expect any such restrictions, if enacted, to be much shorter in duration and have less economic impact than previous episodes. We will therefore opportunistically look to add to our existing core positions on any COVID-related pullbacks.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2112_Ellerston-India.pdfNovember, 2021
The Ellerston India Fund (EIF) was up 3.15% (net after tax) in November versus the MSCI India Index (MXIN) which was up 2.72%. We note that the Indian market was down 2.74% during the month in local currency terms, but a stronger Indian Rupee against the Australian Dollar (AUD) meant that the AUD was a tailwind for absolute returns.
The Indian market experienced the biggest pull back since March 2020 driven by global risk-off due to the emergence of a new COVID variant and an unexpectedly hawkish pivot by the US Federal Reserve (Fed) as well as a disappointing listing of India’s largest IPO.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2111_Ellerston-India.pdfOctober, 2021
The Ellerston India Fund (EIF) was down 4.48% (net) in October versus the MSCI India Index (MXIN) which was down 4.59%. We note that the Indian market was flat for the month in local currency terms, but a weakening Indian Rupee against the Australian Dollar (AUD) meant that the AUD was a headwind for absolute returns. As highlighted in the performance summary table, the FX and tax impacts on the portfolio performance remains material. The Indian market consolidated at all-time high levels during the month as rising oil prices, some weaker than expected earnings results and upcoming IPOs saw some investors trim positions.
The oil price rose another 11% in October and is up 22% in the past two months. We’ve previously highlighted rising oil prices as a potential risk to the economic growth and equity market outlook for India given the country’s reliance on oil imports for its energy needs. The Indian government has attempted to mitigate this risk by reducing the fuel excise duty during the month. Furthermore, the recovery in domestic consumption and improvements in the non-oil trade deficit over the past few years should also soften the macro impact from surging oil prices. Nonetheless, the EIF portfolio is biased towards high quality companies with the ability to grow earnings sustainably through the cycle. The 2QFY22 reporting season wrapped up with aggregate profits growing by ~25%yoy driven primarily by solid top-line growth. Margin pressure was seen across a number of industries such as IT, Consumer and Industrialsdue to cost push inflation from raw material prices, higher wages and supply chain related issues. We believe these cost pressures are likely to persist for a few more quarters. In this environment companies with the pricing power to pass on higher input costs are likely to do well. EIF holds a number of companies such as Reliance, Tech Mahindra and Ultratech Cement with the ability to protect and even grow margins when costs are rising. Our financials holdings should also fare relatively well in an inflationary environment.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2110_Ellerston-India.pdfSeptember, 2021
The Ellerston India Fund (EIF) was up 0.09% (net) in September versus the MSCI India Index (MXIN) which was up 1.79%. As highlighted in the performance summary table, the FX and tax impacts on the portfolio performance remain material. India continues to be the best performing market in the region and is now up for an eighth straight month. Much of this outperformance has been driven by the strong recovery in economic activity post the Delta second wave in May. Many of the high frequency data indicators that we track such as electricity demand, freight volumes and passenger vehicle sales are now at or above pre-COVID levels. Further, we are hearing anecdotes of strong job creation across sectors such as IT services and hospitality/retail. A major reason for the broad-based economic improvements is the Government handling of COVID-19. Vaccination rates continue to ramp-up and is now at ~8m doses per day (vs 7m last month). 70% of India’s eligible population has now received a first dose and 20% is fully vaccinated. Just as importantly, the Government’s more tolerant attitude towards the virus has meant few economic disruptions in recent months. This along with continued supportive fiscal and monetary policy has driven increased business, consumer and investor confidence. We have turned more positive in recent weeks and added to our Financials (HDFC Bank), IT services (Tech Mahindra) and Energy (Reliance Industries) positions. Cash at the end of September was 6%.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2109_Ellerston-India.pdfJune, 2021
The Ellerston India Fund (EIF) was up 2.65% in June versus the MSCI India Index which was up 2.38%. In the 2021 financial year, EIF was up 31.62% compared to the benchmark which was up 43.39%. As highlighted in the performance summary table, the FX and tax impacts on the portfolio performance continues to be material.
The month of June saw a rapid improvement in the COVID trajectory in India. The number of daily reported COVID-19 cases has fallen to ~40,000 from a peak of about 400,000 at the start of May. Meanwhile, the daily fatality rate is now below 1,000 deaths a day vs the peak of about 4,000. Whilst we remain somewhat sceptical over the reported numbers, our channel checks have suggested that things have definitely improved. Conversations with people on the ground suggests that the short and sharp localised lockdowns across the country in April and May along with compliance on mask wearing and social distancing have had the desired effect. This has been confirmed by data releases during the month such as auto sales, electricity demand and freight movements that showed a recovery in both economic and corporate activity. Based on these tangible signs of improvement, we added to our positions in Maruti Suzuki, Reliance Industries and Tata Motors during the month. We however continue to monitor the COVID-19 situation closely as we believe India is still susceptible to another resurgence in cases in the coming weeks. This concern stems from India’s low vaccine penetration rate, which currently sits at 5% of the country’s population. This compares to many developed countries such as the US, UK, Germany, Italy and France where only vaccine penetration is already above 30%. India’s vaccination rate has indeed ramped up to 4.6m per day (vs 3.3m in May), but this has to nearly double in order for the country to achieve the Government’s goal of achieving ‘herd immunity’ and fully vaccinating the entire adult population of 950m by the end of 2021. Indian equity markets meanwhile touched new all-time highs during June and does not appear to be pricing in the possibility of further COVID -19 related disruptions.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2106_Ellerston-India.pdfMay, 2021
Fund update: Portfolio Manager Mary Manning resigned from Ellerston Capital in June and is replaced by Deputy Portfolio Manager Fredy Hoh. Ellerston Capital would like to thank Dr Manning for her valuable contribution to the Fund since its inception and wishes her all the best in her future endeavours.
The Ellerston India Fund (EIF) was up 6.12% versus the MSCI India Index which was up 8.45% and now trading at all time highs. Calendar year to date in 2021, EIF is up 6.47% versus the MSCI India Index return of12.81%. As highlighted in the performance summary table, the FX and tax impacts on the portfolio performance continues to be material.
The key focus for investors during the month was the ongoing COVID second wave. Daily cases, although still high in absolute terms, have fallen significantly to around 115,000 from ~350,000 last month. Daily deaths have also fallen to under 3,000. We are somewhat sceptical of the pace of improvement and in particular the accuracy of testing and reporting. Nonetheless, feedback from the ground is people have been more diligent in following lockdown rules and restrictions, improved their hygiene practices and are more willing to get vaccinated. On the vaccine front, the daily vaccinations have risen to 3.3m (vs 2.7m in April) taking the total shots delivered to ~230m. The Government is aiming to vaccinate the entire adult population of 950m people by the end of CY21.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2105_Ellerston-India.pdfDecember, 2020
The Indian market performed strongly in 2020, which was a surprising result in a year ravaged by the COVID-19 pandemic. The positive performance was driven by strong foreign inflows and a quicker than expected recovery from the negative impacts brought on by COVID-19. The Ellerston India Fund (EIF) returned 4.56% in CY2020 versus the benchmark of 5.27%. We note that the Indian Rupee depreciated against the Australian Dollar by ~11% in 2020 and this was a headwind to absolute returns during the year.
Our biggest contributors to alpha in 2020 were Infosys, Sun Pharmaceutical and ICICI Bank. Whilst Mahindra and Mahindra, Tata Steel and AU Small Finance Bank were the biggest detractors. In the month of December, EIF was up 4.83% compared to the MSCI India Index, which was up 5.22%. This was the seventh consecutive up month for the index and the market is now trading on an all-time high PE multiple of 23x. Elevated valuations despite an ongoing pandemic is a backdrop that makes us wary heading into 2021. We will be watching the upcoming earnings season for confirmation that consensus EPS growth expectations in FY22 of 39%yoy remain intact.
Any disappointment could be a potential catalyst for earnings downgrades and a market de-rating. We also continue to monitor the COVID-19 situation in India and on that front, we are pleased to report that daily cases have been trending down and is now averaging at below 20,000 per day. India has done well to bring down its virus numbers despite being too densely populated for social distancing, having too many cases for effective contact tracing and no fiscal headroom to support more lockdowns. Based on our conversations with people on the ground, a near universal acceptance of masks once the lockdowns lifted has been a major reason for the lower number of cases.
On the vaccine front, India has approved two vaccine candidates - the Oxford-AstraZeneca candidate locally produced by the Serum Institute of India and another locally developed vaccine by Bharat Biotech. Rollout is expected to begin as early as the middle of January 2021 with healthcare/frontline workers and the elderly population first in line to be immunised. This is ahead of our initial estimates of a rollout by March/April 2021. An estimated 300m people are expected to receive the vaccine initially and the government has reportedly set up 31 main hubs from where the vaccines will be distributed to 29,000 immunisation points across the country with the help of the state governments. This is an immense logistical exercise and a successful vaccine rollout will be critical to further containing the spread of the virus and also supporting equity market valuations. In the meantime, the Indian economy continues to post healthy numbers with GST collections reaching all-time highs in December 2020.
Furthermore, the real estate sector appears to be seeing a revival in demand with property registrations in the state of Maharashtra for example jumping 130%yoy in December 2020. While some of this can be attributed to pent up demand from the lockdown, we believe a revival in real estate could be positive for the Indian economy as the real estate sector which accounts for more than 10% of GDP has been a drag on economic growth since 2013.
We are well positioned to capture this trend with positions in real estate dependent plays such as Asian Paints, HDFC, Ultratech Cement and Astra Poly Technik. Turning to portfolio performance in December, Financials and Materials were the two largest contributors to alpha during the month. While Consumer Staples and Utilities were the largest detractors. The largest contributors to alpha were ICICI Bank, Infosys and Indiamart and the largest detractors were Hindustan Unilever, Hero Motocorp and Britannia. Cash at the end of December was 3.0%.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2012-Ellerston-India-Fund-Newsletter-MM.pdfasset_class: Foreign Equity
asset_category: Global Other
peer_benchmark: Foreign Equity - Other Index
broad_market_index: Developed -World Index
manager_contact_details: Array
ticker: ECL0339AU
release_schedule: Monthly
commentary_block: Array
factsheet_url:
https://ellerstoncapital.com/funds/india-fund/
FUND NEWSLETTER
fund_features:
The investment objective of Ellerston India is to provide investors with exposure to Indian companies and to outperform the MSCI India Net Return Index (AUD) with a focus on risk management and capital preservation. The Fund’s investment strategy is to construct a concentrated portfolio with exposure to Indian Companies using the Manager’s high growth, high conviction, benchmark independent investment approach. The focus is on investing in Indian Companies that benefit from these fundamental drivers. Stock selection is by a conviction scorecard which evaluates investment opportunities on a number of key criteria including growth, valuation upside, industry structure, thematics, management capabilities and ESG (Environmental Social and Governance). This ‘bottom up’ approach to stock selection is married with the Manager’s ‘top down’ assessment of India’s macroeconomic conditions and the outlook for the Indian market and currency.
structure: Managed Fund