Ashoka India Equity 06 December 2022

Since its launch in July 2018, Ashoka India Equity (AIE) has easily been the top performer amongst its peer group, with a NAV total return of 109.1%, to 11/11/2022 (see Performance section). It is managed by White Oak Capital Management, which was founded in 2017 and, having grown rapidly in size, now manages assets of around $5.8bn, as at 31/10/2022. It boasts the largest dedicated Indian equity team in the AIC universe, with over 25 analysts.

Key to their success has been their proprietary ‘OpcoFinco’ valuation model which considers recurring cash flows after capital expenditures and financing costs have been accounted for. It aims to filter out those companies with optically-low P/E ratios which have poor economic characteristics and cash flows, in order to avoid value traps (see Portfolio section). The team believe it provides superior insights compared to traditional valuation metrics.

This has helped AIE to deliver strong outperformance since launch and has seen it trade mostly above par and achieve substantial growth from issuance, as well as performance. The peers have tended to trade at double-digit discounts (see Discount section). This performance has been all the more impressive given that it hasn’t used any gearing. However, the year-to-date performance is a little more muted, with AIE falling marginally behind the benchmark and peers. Whilst many mid and small-cap stocks have performed well, a number of AIE’s technology positions have pulled back in sympathy with global technology stocks. Meanwhile, the trust has missed out on the gains in the energy and utilities sectors. The latest OCF is 0.32%. This does not include a three-year performance fee, which is paid in shares in order to align the manager’s interests with those of investors.

We believe that India offers a compelling investing opportunity because of many long-term secular tailwinds. Amongst these are its favourable demographics and rising income levels, thereby allowing for end markets to grow and a consumerism culture to flourish, with the demand for discretionary goods, travel and leisure, financial and healthcare services on the rise. The rapid digitalisation of services, supported by increasing internet penetration and strong online demand, is also creating new avenues for businesses. Past Government reforms are aiding further formalisation of the economy, which have made things like formal banking channels much more relevant for the low-income population. Reforms across the economy have also made India an improved place in which to do business today, compared with its chequered past. Meanwhile, there have been huge spending projects undertaken to develop the country’s infrastructure. These developments, amid the ongoing geopolitical tensions, are increasingly favouring India over China for multinationals’ foreign direct investments and manufacturing plants, as they look to take advantage of India’s educated, skilled and cheap labour force.

We believe that AIE is a fund that is well-placed to benefit from India’s bright outlook. The bias towards small-cap companies that can demonstrate the ability to scale up and target the emerging middle class and India’s domestic consumption story should ensure that the portfolio will take full advantage of India’s positive growth outlook. Meanwhile, the ‘OpcoFinco’ framework means that the portfolio effectively takes a quality approach, ensuring greater resilience during more challenging market conditions.