A focus on Asia—and providing compelling investment solutions for our clients—is what we believe distinguishes us among investment managers. Our insights into investment opportunities and risks are backed by proprietary research, a collaborative culture and 30 years of experience.
Unconstrained all-cap strategy focused on companies with a sustainable competitive edge and pricing power, which are able to perform throughout economic cycles
Fundamental bottom-up approach to seek well-run entrepreneurial companies with sustainable organic growth and trustworthy managements
The Fund promotes environmental and social characteristics according to Article 8 of SFDR. Furthermore, the Fund uses both activity- and norm-based exclusions. Information relating to the environmental and social characteristics of this Fund is available in the prospectus.
Strategy
The Fund seeks to achieve its investment objective by investing, directly or indirectly, at least 65% of its total net assets, in publicly traded common stocks, preferred stocks and convertible securities of companies located in India, and may invest the remainder of its net assets in other permitted assets on a worldwide basis.
Risks
The value of an investment in the Fund can go down as well as up and possible loss of principal is a risk of investing. Investments in international, emerging and frontier market securities may involve risks such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation, which may adversely affect the value of the Fund's assets. The Fund invests in holdings denominated in foreign currency, and is exposed to the risk that the value of the foreign currency will increase or decrease. The Fund invests primarily in equity securities, which may result in increased volatility. Investments in a single-country fund may be subject to a higher degree of market risk than diversified funds because of concentration in a specific country.
These and other risks associated with investing in the Fund can be found in the
prospectus.
The Fund seeks to achieve its investment objective by investing, directly or indirectly, at least 65% of its total net assets, in publicly traded common stocks, preferred stocks and convertible securities of companies located in India, and may invest the remainder of its net assets in other permitted assets on a worldwide basis.
Risks
The value of an investment in the Fund can go down as well as up and possible loss of principal is a risk of investing. Investments in international, emerging and frontier market securities may involve risks such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation, which may adversely affect the value of the Fund's assets. The Fund invests in holdings denominated in foreign currency, and is exposed to the risk that the value of the foreign currency will increase or decrease. The Fund invests primarily in equity securities, which may result in increased volatility. Investments in a single-country fund may be subject to a higher degree of market risk than diversified funds because of concentration in a specific country.
The risks associated with investing in the Fund can be found in the prospectus
Performance
Monthly
Quarterly
Calendar Year
Rolling 12 Month Returns
As of 29/02/2024
Annualized Returns
Name
1MO
3MO
YTD
1YR
3YR
5YR
10YR
Since Inception
Inception Date
Matthews India Fund (USD)
2.44%
11.28%
5.99%
39.97%
13.68%
13.73%
12.80%
8.50%
30/06/2011
S&P Bombay Stock Exchange 100 Index (USD)
2.11%
11.52%
2.97%
32.07%
13.03%
13.74%
12.10%
7.92%
MSCI India Index (USD)
2.77%
13.80%
5.26%
37.82%
13.31%
13.71%
10.70%
6.75%
Matthews India Fund (GBP)
2.78%
11.32%
6.61%
33.98%
17.62%
15.00%
16.05%
10.59%
30/06/2011
(GBP)
3.46%
13.89%
6.08%
31.91%
17.16%
14.86%
13.86%
8.78%
As of 31/12/2023
Annualized Returns
Name
1MO
3MO
YTD
1YR
3YR
5YR
10YR
Since Inception
Inception Date
Matthews India Fund (USD)
4.99%
9.36%
28.72%
28.72%
13.28%
12.02%
12.32%
8.12%
30/06/2011
S&P Bombay Stock Exchange 100 Index (USD)
8.30%
11.38%
22.44%
22.44%
13.20%
12.39%
11.65%
7.63%
MSCI India Index (USD)
8.11%
11.98%
21.29%
21.29%
12.43%
12.12%
10.08%
6.40%
Matthews India Fund (GBP)
4.42%
5.37%
21.80%
21.80%
16.19%
12.28%
15.37%
10.17%
30/06/2011
(GBP)
7.08%
6.51%
16.07%
16.07%
15.79%
12.37%
14.60%
9.63%
For the years ended December 31st
Name
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
Matthews India Fund (USD)
28.72%
-8.93%
24.00%
18.20%
2.66%
-9.78%
37.88%
-3.05%
-2.73%
54.46%
S&P Bombay Stock Exchange 100 Index (USD)
22.44%
-4.53%
24.08%
13.92%
8.53%
-6.00%
41.88%
2.32%
-6.41%
31.40%
MSCI India Index (USD)
21.29%
-7.49%
26.66%
15.90%
7.58%
-7.30%
38.76%
-1.43%
-6.12%
23.87%
Matthews India Fund (GBP)
21.80%
2.53%
25.60%
14.19%
-0.37%
-4.76%
25.78%
16.54%
2.28%
63.93%
S&P Bombay Stock Exchange 100 Index (GBP)
16.07%
6.87%
25.15%
10.68%
4.30%
-0.23%
29.51%
22.13%
-1.02%
39.60%
For the period ended 31/12/2023
Name
2023
2022
2021
2020
2019
Inception Date
Matthews India Fund (USD)
28.72%
-8.93%
24.00%
18.20%
2.66%
30/06/2011
S&P Bombay Stock Exchange 100 Index (USD)
22.44%
-4.53%
24.08%
13.92%
8.53%
MSCI India Index (USD)
21.29%
-7.49%
26.66%
15.90%
7.58%
Matthews India Fund (GBP)
21.80%
2.53%
25.60%
14.19%
-0.37%
30/06/2011
S&P Bombay Stock Exchange 100 Index (GBP)
16.07%
6.87%
25.15%
10.68%
4.30%
Source: Brown Brothers Harriman (Luxembourg) S.C.A.
All returns over 1 year are annualized
Since inception performance for share classes with less than one year of history represents actual performance, not annualised. In addition, for share classes less than a year old, Year to Date Return is calculated since inception. Where no past performance is shown there was insufficient data available in that year to provide performance.
Performance details provided are based on a NAV-to-NAV basis with any dividends reinvested, and are net of management fees and other expenses. Performance data has been calculated in the respective currencies stated above, including ongoing charges and excluding subscription fee and redemption fee you might have to pay.
All performance quoted represents past performance and is not indicative of future performance. Investors may not get back the full amount invested. Investors investing in funds denominated in non-local currency should be aware of the risk of currency exchange fluctuations that may cause a loss of principal.
Additional performance, attribution, liquidity, value at risk (VaR), security classification and holdings information is available on request for certain time periods.
Portfolio Characteristics
(as of 29/02/2024)
Fund
Benchmark
Number of Positions
69
101
Weighted Average Market Cap
$43.3 billion
$71.0 billion
Active Share
57.9
n.a.
P/E using FY1 estimates
25.2x
23.6x
P/E using FY2 estimates
22.6x
20.7x
Price/Cash Flow
21.3
16.2
Price/Book
4.5
4.0
Return On Equity
16.6
18.9
EPS Growth (3 Yr)
21.5%
22.9%
Sources: Factset Research Systems, Inc.
Risk Metrics (3 Yr Return)
(as of 29/02/2024)
Category
3YR Return Metric
Alpha
2.8%
Beta
0.77
Upside Capture
81.87%
Downside Capture
72.87%
Sharpe Ratio
0.86
Information Ratio
0.1
Tracking Error
6.55%
R²
80.83
2.80%
Alpha
0.77
Beta
81.87%
Upside Capture
72.87%
Downside Capture
0.86
Sharpe Ratio
0.10
Information Ratio
6.55%
Tracking Error
80.83
R²
Fund Risk Metrics are reflective of Class I USD ACC shares.
Top 10 holdings may combine more than one security from the same issuer and related depositary receipts. Source: Brown Brothers Harriman (Luxembourg) S.C.A
Portfolio Breakdown (%)
(as of 29/02/2024)
Sector Allocation
Market Cap Exposure
Sector
Fund
Benchmark
Difference
Financials
28.7
30.4
-1.7
Consumer Discretionary
16.6
10.7
5.9
Industrials
16.1
7.9
8.2
Information Technology
11.9
12.1
-0.2
Health Care
9.9
4.5
5.4
Consumer Staples
6.9
9.3
-2.4
Energy
5.7
11.2
-5.5
Materials
1.9
7.1
-5.2
Real Estate
1.5
0.5
1.0
Communication Services
1.2
2.9
-1.7
Utilities
0.0
3.4
-3.4
Liabilities in Excess of Cash and Other Assets
-0.5
0.0
-0.5
Sector data based on MSCI’s revised Global Industry Classification Standards. For more details, visit www.msci.com.
Equity market cap of issuer
Fund
Benchmark
Difference
Mega Cap (over $25B)
38.2
72.7
-34.5
Large Cap ($10B-$25B)
16.9
21.3
-4.4
Mid Cap ($3B-$10B)
17.8
5.8
12.0
Small Cap (under $3B)
27.5
0.1
27.4
Liabilities in Excess of Cash and Other Assets
-0.5
0.0
-0.5
Source: FactSet Research Systems unless otherwise noted. Percentage values in data are rounded to the nearest tenth of one percent, so the values may not sum to 100% due to rounding. Percentage values may be derived from different data sources and may not be consistent with other Fund literature.
Sustainability-related Disclosures
This Fund
Yes
No
Complies with Article 8 of SFDR
Investment process integrates ESG factors and sustainability risks based on proprietary and third-party research
Applies norms- and activity-based exclusions
Promotes environmental and social characteristics
Has a sustainable investment objective
Conducts engagement
Exercises Voting Rights
Investors should not invest in the Fund solely based on the information in this material alone. Please refer to the Prospectus for further details of the Fund’s investment objective and risk factors.
The Overall Morningstar®️ Rating for a fund is derived from a weighted-average of the performance figures associated with its three-, five- and (if applicable) ten-year ratings.
Morningstar RatingTM for funds, or "star rating", is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product's monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The Morningstar Rating does not include any adjustment for sales loads. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its three-, five-, and 10-year (if applicable) Morningstar Rating metrics. The weights are: 100% three-year rating for 36-59 months of total returns, 60% five-year rating/40% three-year rating for 60-119 months of total returns, and 50% 10-year rating/30% five-year rating/20% three-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10-year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods.
Peeyush Mittal is a Portfolio Manager at Matthews and manages the firm’s India Strategy and co-manages the Emerging Markets Equity, Emerging Markets ex China, Asia Growth and Pacific Tiger Strategies. Prior to joining the Matthews in 2015, he spent over three years at Franklin Templeton Asset Management India, most recently as a Senior Research Analyst. Previously, he was with Deutsche Asset & Wealth Management New York, from 2009 to 2011, researching U.S. and European stocks in the industrials and materials sectors. Peeyush began his career in 2003 with Scot Forge as an Industrial Engineer, and was responsible for implementing Lean Manufacturing systems on the production shop floor. Peeyush earned his M.B.A from The University of Chicago Booth School of Business. He received a Master of Science in Industrial Engineering from The Ohio State University and received a Bachelor of Technology in Metallurgical Engineering from The Indian Institute of Technology Madras. He is fluent in Hindi.
Swagato Ghosh is a Portfolio Manager at Matthews and co-manages the firm’s India Strategy. Prior to joining the firm in 2022, he was an investment analyst at Franklin Templeton India, where he was the lead cement, real estate and consumer discretionary analyst. From 2016 to 2018, he was an investment analyst at Goldman Sachs Asset management researching U.S. health care sector. From 2013 to 2015, Swagato was an equity research analyst at Jefferies India. He received his B.Tech in Mining Engineering from Indian Institute of Technology Kharagpur and his MBA from Indian Institute of Management Calcutta. Swagato is fluent in Hindi and Bengali.
For the year ending 31 December 2023, the Matthews India Fund returned 28.72%, while its benchmark, the S&P Bombay Stock Exchange 100 Index returned 22.44%. For the fourth quarter of the year, the Fund returned 9.36% versus 11.38% for the benchmark.
Market Environment
High interest rates globally, on the back of monetary policy tightening, continued for most of 2023. Through the course of this year, we saw a substantial cooling off in the price of both hard and soft commodities yet inflation continued to remain higher than the comfort level of most central banks globally. In part this was related to the unfolding Russia-Ukraine and Israel-Gaza military conflicts. These events have led to tightness in energy markets, elevated logistics costs and challenged food supplies which in turn have kept the inflation from falling faster.
India was a bright spot in global markets with strong returns helped by both fundamentals and investor inflows. Domestic economic activity remained strong as the government maintained its infrastructure-related spending momentum. Consumption, however, was soft throughout the year especially at the mid and bottom-end of the income strata. Weak monsoons also delayed recovery in rural demand. In spite of this, GDP growth was above 7% in last three quarters led mainly by government capital expenditure expansion.
Results of state elections held in the later part of the year increased the probability of political continuity of incumbent Prime Minister Modi in the 2024 general elections. And while foreign flows were supportive, incremental positive domestic flows were a bigger driver of the market in 2023.
The world is also witnessing an accelerated trend by businesses of all sizes to reset their supply chains and to reduce their dependence on imports from China. Given the political and economic stability of India, more and more businesses are looking to relocate parts of their supply network in India.
Performance Contributors and Detractors
For the year, stock selections in health care, financials and information technology (IT) were the biggest contributors to relative performance. On the other hand, the portfolio’s zero exposure in utilities was the biggest detractor to relative performance. Stock selection in consumer discretionary and consumer staples were also detractors for the year.
At the holdings level, Neuland Laboratories, Shriram Finance and Cholamandalam Investment and Finance Co. were among the top contributors to performance for the year. Neuland is an API (active pharmaceutical manufacturing) company which executed very well throughout the year and posted robust numbers. Shriram and Chola are non-bank financial institutions (NBFCs) which executed well on book growth and diversification, while maintaining good credit quality during the year.
At the other end of the spectrum, Dabur India and Restaurant Brands Asia were among the weaker performers, impacted by a lack of revival in consumer demand in their specific categories.
Notable Portfolio Changes
This year, we sought to improve our holdings in sectors like consumer discretionary and staples and invested in names where growth visibility is higher. To that extent we initiated a position in Sona BLW Precision Forgings. The company’s differentiated capabilities in auto components, especially for electric vehicles (EV), gives it a sustainable competitive advantage, we believe, and hence long runway for growth. We exited Dabur India which we believe have become a growth laggard within the staples space and there is no visibility on why that might change in the future. We also exited our position in Crompton Greaves, driven by findings from our primary research process which suggested a breakdown in sales and marketing strategy and internal turmoil due to employee attrition at all levels.
We initiated a position in Mahindra & Mahindra Financial Services to leverage the trend of NBFCs growing strongly in a strong credit growth cycle, with improving asset quality.
Outlook
We remain optimistic about the near-term outlook for India. Inflation and interest rates have peaked out and future actions by the Indian central bank on the rate-front or on liquidity should boost growth, we believe in the coming year. The government should continue its infrastructure related spend, in our view, albeit with a hiatus of few months around the elections. We believe consumption growth should also come back sooner rather than later as the year earlier base becomes more favorable and real income growth returns. We prefer domestic sectors like real estate, utilities and financial services and other sectors like manufacturing where there are clear tailwinds from China +1 strategies among multinational companies.
We believe the current government’s focus on establishing India as a manufacturing hub, to replace imports and to tap export opportunities, will continue and may even gather steam as global volatility increase. Sectors like auto and auto ancillary and chemicals are well poised to benefit from this.
Residential real estate is in the midst of an extended up-cycle which will benefit housing developers and ancillary companies. Stricter regulations and consolidation on the supply side over the last decade has led to a much cleaner property market in India with many more investment opportunities to ride this upcycle.
India is also embarking on a massive power capacity augmentation over the next decade, most of which will be renewable. For this year we see growth in domestic demand for energy and the need for energy security will also be strong narratives for utility companies and renewables plays. Global macro volatility will impact India but to a lesser extent than many other economies. All in all, unless there are any major external or internal shocks, we believe India should have another good year in terms of economic growth and stock market performance.
Rolling 12 Month Returns For the period ended 31/12/2023 - I (Acc)
The Benchmark used for comparison under "Portfolio Breakdown" and "Portfolio Characteristics" is the S&P Bombay Stock Exchange 100 index.
Performance figures discussed in the Fund Manager Commentary above reflect that of the Institutional Accumulation Class Shares and has been calculated in USD. Performance details provided for the Fund are based on a NAV-to-NAV basis, with any dividends reinvested, and are net of management fees and other expenses. Past performance information is not indicative of future performance. Investors may not get back the full amount invested.
The information contained herein has been derived from sources believed to be reliable and accurate at the time of compilation, but no representation or warranty (express or implied) is made as to the accuracy or completeness of any of this information. Matthews Asia and its affiliates do not accept any liability for losses either direct or consequential caused by the use of this information.
Information contained herein is sourced from Matthews Asia unless otherwise stated. The views and opinions in this commentary were as of the report date, subject to change and may not reflect the writer’s current views. They are not guarantees of performance or investment results and should not be taken as investment advice. Investment decisions reflect a variety of factors, and the managers reserve the right to change their views about individual stocks, sectors, and the markets at any time. As a result, the views expressed should not be relied upon as a forecast of the Fund’s future investment intent. It should not be assumed that any investment will be profitable or will equal the performance of any securities or any sectors mentioned herein. The information does not constitute a recommendation to buy or sell any securities mentioned.
Investors should not invest in the Fund solely based on the information in this material alone. Please refer to the Prospectus for further details of the risk factors.
The MSCI All Country Asia ex Japan Index is a free float–adjusted market capitalization–weighted index of the stock markets of China, Hong Kong, India, Indonesia, Malaysia, Pakistan, Philippines, Singapore, South Korea, Taiwan and Thailand.
The MSCI All Country Asia Pacific Index is a free float–adjusted market capitalization–weighted index of the stock markets of Australia, China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand, Pakistan, Philippines, Singapore, South Korea, Taiwan and Thailand.
The MSCI China Index is a free float-adjusted market capitalization-weighted index of Chinese equities that includes H shares listed on the Hong Kong exchange, B shares listed on the Shanghai and Shenzhen exchanges, Hong Kong-listed securities known as Red chips (issued by entities owned by national or local governments in China) and P Chips (issued by companies controlled by individuals in China and deriving substantial revenues in China) and foreign listings (e.g. ADRs).
The MSCI China All Shares Index captures large and mid-cap representation across China A shares, B shares, H shares, Red chips (issued by entities owned by national or local governments in China), P chips (issued by companies controlled by individuals in China and deriving substantial revenues in China), and foreign listings (e.g. ADRs). The index aims to reflect the opportunity set of China share classes listed in Hong Kong,Shanghai, Shenzhen and outside of China.
The MSCI China A Onshore Index captures large and mid cap representation across China securities listed on the Shanghai and Shenzhen exchanges. Index is for comparative purposes only and it is not possible to invest directly in an index.
The MSCI Emerging Markets Index is a free float-adjusted market capitalization-weighted index of the stock markets of Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, Saudi Arabia, South Africa, South Korea, Taiwan, Thailand, Turkey and United Arab Emirates.
The MSCI Emerging Markets ex China Index is a free float-adjusted market capitalization-weighted index that captures large and mid cap representation across 23 of the 24 Emerging Markets (EM) countries excluding China: Brazil, Chile, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Kuwait, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Saudi Arabia, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates.
The MSCI Emerging Markets Small Cap Index is a free float-adjusted market capitalization weighted small cap index of the stock markets of Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungry, India, Indonesia, Kuwait, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, Saudi Arabia, South Africa, South Korea, Taiwan Thailand, Turkey and United Arab Emirates.
The S&P Bombay Stock Exchange 100 (S&P BSE 100) Index is a free float–adjusted market capitalization–weighted index of 100 stocks listed on the Bombay Stock Exchange.
The MSCI Japan Index is a free float–adjusted market capitalization–weighted index of Japanese equities listed in Japan.
The MSCI All Country Asia ex Japan Small Cap Index is a free float–adjusted market capitalization–weighted small cap index of the stock markets of China, Hong Kong, India, Indonesia, Malaysia, Pakistan, Philippines, Singapore, South Korea, Taiwan and Thailand.
The MSCI China Small Cap Index is a free float-adjusted market capitalization-weighted small cap index of the Chinese equity securities markets, including H shares listed on the Hong Kong exchange, B shares listed on the Shanghai and Shenzhen exchanges,Hong Kong-listed securities known as Red Chips (issued by entities owned by national or local governments in China) and P Chips (issued by companies controlled by individuals in China and deriving substantial revenues in China), and foreign listings (e.g., ADRs).
The MSCI India Index is a free float-adjusted market capitalization-weighted index of Indian equities listed in India.
Indexes are for comparative purposes only and it is not possible to invest directly in an index.
Commentary
Period ended 31 December 2023
For the year ending 31 December 2023, the Matthews India Fund returned 28.72%, while its benchmark, the S&P Bombay Stock Exchange 100 Index returned 22.44%. For the fourth quarter of the year, the Fund returned 9.36% versus 11.38% for the benchmark.
Market Environment
High interest rates globally, on the back of monetary policy tightening, continued for most of 2023. Through the course of this year, we saw a substantial cooling off in the price of both hard and soft commodities yet inflation continued to remain higher than the comfort level of most central banks globally. In part this was related to the unfolding Russia-Ukraine and Israel-Gaza military conflicts. These events have led to tightness in energy markets, elevated logistics costs and challenged food supplies which in turn have kept the inflation from falling faster.
India was a bright spot in global markets with strong returns helped by both fundamentals and investor inflows. Domestic economic activity remained strong as the government maintained its infrastructure-related spending momentum. Consumption, however, was soft throughout the year especially at the mid and bottom-end of the income strata. Weak monsoons also delayed recovery in rural demand. In spite of this, GDP growth was above 7% in last three quarters led mainly by government capital expenditure expansion.
Results of state elections held in the later part of the year increased the probability of political continuity of incumbent Prime Minister Modi in the 2024 general elections. And while foreign flows were supportive, incremental positive domestic flows were a bigger driver of the market in 2023.
The world is also witnessing an accelerated trend by businesses of all sizes to reset their supply chains and to reduce their dependence on imports from China. Given the political and economic stability of India, more and more businesses are looking to relocate parts of their supply network in India.
Performance Contributors and Detractors
For the year, stock selections in health care, financials and information technology (IT) were the biggest contributors to relative performance. On the other hand, the portfolio’s zero exposure in utilities was the biggest detractor to relative performance. Stock selection in consumer discretionary and consumer staples were also detractors for the year.
At the holdings level, Neuland Laboratories, Shriram Finance and Cholamandalam Investment and Finance Co. were among the top contributors to performance for the year. Neuland is an API (active pharmaceutical manufacturing) company which executed very well throughout the year and posted robust numbers. Shriram and Chola are non-bank financial institutions (NBFCs) which executed well on book growth and diversification, while maintaining good credit quality during the year.
At the other end of the spectrum, Dabur India and Restaurant Brands Asia were among the weaker performers, impacted by a lack of revival in consumer demand in their specific categories.
Notable Portfolio Changes
This year, we sought to improve our holdings in sectors like consumer discretionary and staples and invested in names where growth visibility is higher. To that extent we initiated a position in Sona BLW Precision Forgings. The company’s differentiated capabilities in auto components, especially for electric vehicles (EV), gives it a sustainable competitive advantage, we believe, and hence long runway for growth. We exited Dabur India which we believe have become a growth laggard within the staples space and there is no visibility on why that might change in the future. We also exited our position in Crompton Greaves, driven by findings from our primary research process which suggested a breakdown in sales and marketing strategy and internal turmoil due to employee attrition at all levels.
We initiated a position in Mahindra & Mahindra Financial Services to leverage the trend of NBFCs growing strongly in a strong credit growth cycle, with improving asset quality.
Outlook
We remain optimistic about the near-term outlook for India. Inflation and interest rates have peaked out and future actions by the Indian central bank on the rate-front or on liquidity should boost growth, we believe in the coming year. The government should continue its infrastructure related spend, in our view, albeit with a hiatus of few months around the elections. We believe consumption growth should also come back sooner rather than later as the year earlier base becomes more favorable and real income growth returns. We prefer domestic sectors like real estate, utilities and financial services and other sectors like manufacturing where there are clear tailwinds from China +1 strategies among multinational companies.
We believe the current government’s focus on establishing India as a manufacturing hub, to replace imports and to tap export opportunities, will continue and may even gather steam as global volatility increase. Sectors like auto and auto ancillary and chemicals are well poised to benefit from this.
Residential real estate is in the midst of an extended up-cycle which will benefit housing developers and ancillary companies. Stricter regulations and consolidation on the supply side over the last decade has led to a much cleaner property market in India with many more investment opportunities to ride this upcycle.
India is also embarking on a massive power capacity augmentation over the next decade, most of which will be renewable. For this year we see growth in domestic demand for energy and the need for energy security will also be strong narratives for utility companies and renewables plays. Global macro volatility will impact India but to a lesser extent than many other economies. All in all, unless there are any major external or internal shocks, we believe India should have another good year in terms of economic growth and stock market performance.
Rolling 12 Month Returns For the period ended 31/12/2023 - I (Acc)
Sources: Brown Brothers Harriman (Luxembourg) S.C.A, Matthews Asia, FactSet Research Systems, Bloomberg