Matthews India Fund

Period ended 30 September 2020

For the quarter ending 30 September 2020, the Matthews India Fund returned 19.05%, while its benchmark, the S&P Bombay Stock Exchange 100 Index returned 12.93%.

Market Environment:

Indian equities were some of the strongest regional performers across Asia in the third quarter, following similar results in the prior quarter. India's stock markets performed well, despite the elevated daily COVID-19 infection rates. Easing of restrictions on social and commercial activities continued through the quarter albeit with intermittent and localized lockdowns in some cities. Economic activity has continued to improve through the quarter with many industries reporting near normal demand, particularly in the month of September. Rural demand has remained robust on back of another better-than-normal monsoon season for second year in row. Visibility of good harvest is buoying demand for consumer durables, which was otherwise hurt by weak urban demand after COVID related lockdowns were imposed. However, a weak fiscal position on back of lackluster tax collection has kept the government from boosting fiscal spending and has also pushed them to raise taxes on gasoline and diesel. Higher fuel prices have resulted as consequence of higher taxes. While interest rates have inched higher, core inflation remains broadly in check.

Performance Contributors and Detractors:

Stock selection among small-cap stocks, as well as a notable overweight to small caps, was a major contributor to relative performance in the quarter. In particular, small-cap health care names such as Caplin Point Laboratories generated strong gains, illustrating the evolution of India's health care sector toward more innovative business models. Among individual securities, mid-cap financials company Bandhan Bank detracted from performance, as Indian financials continued to wrestle with the economic impacts of the COVID-19 pandemic. The company remains well capitalized and we continue to like its long-term prospects.

From a sector perspective, health care and consumer staples sectors were contributors in the quarter, driven by strong stock selection. On the other hand, the Fund's underweight and stock selection in the materials sector was a slight detractor from relative performance. We tend to have smaller positions and engage very selectively in this highly cyclical sector.

Notable Portfolio Changes:

During the quarter, we were very active in adding new positions to the portfolio, taking advantage of market dynamics to invest in faster growing investment opportunities at relatively attractive valuations. As consumers are spending more time at home, it is our belief that greater domestic consumption spend would happen in improving personal living spaces and quality of life. As such, we initiated a position in Whirlpool of India during the quarter. We also think real estate, construction activity will revive given government incentives and initiated a position in Pidilite Industries.

Meanwhile, we exited investments in Baja Consumer Care and ITC Limited where the visibility of growth was lacking and where we thought management incentives were not aligned to minority shareholders. We also exited positions that had done very well in last six to nine months but where we thought valuations left little room for error, such as Alembic Pharmaceutical.


Recent data on a reduction in COVID-19 cases over last few weeks leads us to believe that India's economy may be on a path to recovery, although we can't predict the pace or timing of recovery. In our view, the pandemic has provided a jolt that is likely to reset global supply chains across different industries, which may benefit Indian companies. We are already witnessing positive pick up in export demand for many industries, including ancillary automotive sectors, pharmaceuticals, chemicals, tiles, electronics, white goods outsourcing and textiles. Recent changes to labor laws in India are aimed at easing the legal and regulatory burden on foreign companies and will help improve ‹ease of doing business' in India over the long term. As India's domestic demand normalizes and export demands picks up further legs, we are hopeful the economy will likely grow in line with historical levels over longer timer periods. The month of September also saw a normalization of tax receipts, which could help improve India's fiscal position over time if the trend continues.

Rolling 12 Month Returns for the period ended 30 September 2020
Matthews India Fund 2020 2019 2018 2017 2016
I (Acc) (USD) -2.58% 5.14% -4.64% 15.36% 3.97%
S&P Bombay Stock Exchange 100 Index (USD) -4.34% 8.11% -0.09% 18.59% 9.45%
I (Acc) (GBP) -6.45% 11.36% -2.05% 11.55% 21.91%
S&P Bombay Stock Exchange 100 Index (GBP) -8.94% 14.74% 2.63% 14.83% 27.71%

Risk Considerations

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 and emerging market securities may involve risks such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. 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.

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 International Capital Management, LLC (“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.

Sources: Brown Brothers Harriman (Luxembourg) S.C.A, Matthews Asia, FactSet Research Systems, Bloomberg