InvestNow News 18th Oct – India Avenue – Fact Sheets – Sep 2019

Fund and Market Commentary: September 2019

The India Avenue Equity Fund (wholesale) delivered a return of 4.22% for the month of September 2019, which was above the MSCI India benchmark of 2.97% for the equivalent period. Over a one-year period the Fund achieved a return of 9.04%, trailing its benchmark by 3.34%. As previously discussed, the Fund’s performance is reflective of the corporate health of India’s broader equity market. It has less exposure to the top 15 stocks by market capitalisation, which are significant weights in the benchmark, but do not necessarily represent the breadth of the “India growth story”.

The last 18 months in India have seen a period of extremely narrow leadership in outperforming stocks as investors in India have reduced their willingness to take on exposure in small and mid- cap companies or anything cyclical, with strong linkages to economic growth. This has created significant dispersion in valuations of companies with low corporate earnings volatility (which are priced at a significant premium today) to companies which are likely to thrive when the cyclical weakness we are experiencing in India today is over (priced at a significant discount to the top 15 stocks by market capitalisation).

With significant stimulus from monetary policy and Government reforms (see our attached article on Corporate Tax reform announced in September 2019), it is likely we are closer to a pick- up in economic activity, which our Fund is positioned well for.

Today the Nifty 50 trades at a 1-year forward price-earnings multiple of approximately 18x, whereas our fund’s forward P/E is closer to 15x.

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