Results analysis: Ashoka India Equity

• Ashoka India Equity (AIE) released its half-year results for the six months ending 31 December 2021 on Friday. The trust delivered NAV total returns of 25.2% over the period, outperforming the benchmark, the MSCI India IMI, which generated a total return of 15.4%. Total share price returns over the half-year were 100bps higher at 26.2%.
• Key contributors to the trust’s outperformance included IT services companies Coforge and Persistent Systems, as well as specialty chemicals manufacturer Laxmi Organic Industries.
• AIE traded at a premium for much of the half-year period, enabling the board to issue 9.8m new shares and raise gross proceeds of £19.8m. The trust’s shareholders also approved a new prospectus in October 2021 that should allow the trust to issue new shares more quickly if the opportunity to do so arises.
• Corporate earnings cycle is improving after a decade of sluggish growth. As per consensus, earnings for the Nifty 50 Index is estimated to grow by 32% in FY22 and 17% in 2023. Public sector capital expenditure has also risen at a 28% two-year CAGR in the FY22 (year ending March 2022) financial year to date.
• “[The] board believes that little has changed in terms of India offering an exciting opportunity to invest for the longer term in a vibrant, growth-driven economy,” said AIE Chairman Andrew Watkins. “Inflation worldwide remains a threat to growth but India’s more domestic-led economy, where the government is able to demonstrate an ability to better manage inflationary pressures, may act as a possible hedge against such a risk.”

Kepler View

Ashoka India Equity (AIE) has posted another set of strong results that build upon an impressive track record. It has been the top performer in its peer group and delivered strong outperformance relative to its benchmark since 31/07/2018, when the trust was first fully invested post-IPO.

Like much of the wider market, AIE has seen a downturn since the start of the year due to inflationary pressures and the uncertainty caused by the Russia-Ukraine conflict. It now trades at a 3.7% discount to NAV, a rarity for the trust since its launch in 2018.

The trust’s portfolio is managed by White Oak Capital Management and uses an investment process developed by founder Prashant Khemka, the former CIO of Goldman Sachs’ Global Emerging Markets team.

A cash-flow analysis framework is used for stock picking and the trust managers do not attempt to make decisions based on macroeconomic calls. AIE tends to invest in businesses with higher than average earnings and sales growth. But this doesn’t necessarily come with a higher valuation on conventional metrics as might be expected. Often the trust looks cheaper than the market on a P/E ratio.

We would also note that AIE has a relatively unique compensation scheme that helps align management with shareholders. Analysts are compensated based on the amount of outperformance their contributions make to the portfolio. White Oak receives no management fee, only a performance fee that is dependent on outperformance relative to the benchmark.

Looking ahead, the trust’s overexposure to the financial, industrial, and materials sectors may help it weather the prospective storm of inflation. The blanket sell-off we’ve seen in 2022 has also not been particularly discriminating, so it may be that fundamentals have, in some cases, fallen behind share prices. For investors that are prepared to look past some of the current uncertainty in the market and remain bullish on India, AIE continues to offer an attractive dedicated exposure to the country.

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