India as a market may seem toppy for some managers from a valuations perspective but a recent influx of foreign direct investment (FDI) has pleased funds focused on the region, such as the Ashoka India Equity (AIE) Investment Trust.
Ramesh Mantri, adviser of AIE said big technology players moving manufacturing into India will ramp up foreign investment. Google recently made a $4.5 billion investment in Jio Platforms, a subsidiary of Reliance Industries which is active in the Indian telecommunications market. Several Indian corporates have also raised large sums of capital from the equity markets. For instance, Reliance ($22 billion), HUL ($3.4 billion), Kotak Bank ($2 billion) and Bharti Airtel ($1 billion) have seen over $25bn of transactions collectively.
India is also winning market share as a tech manufacturing hub from China due in part to Prime Minister Narendra Modi making structural reforms to incentivise FDI. The move has seen India emerge as the second largest hub for smartphone manufacturing with Apple’s contract manufacturing partner, Foxconn, assembling the iphone11 in its plant near Chennai. Similarly, Samsung, Xiaomi and LG have all scaled up their India operations substantially.
AIE holds Dixon Technologies, one of India’s most successful electronic manufacturing company, which continues to demonstrate strong execution and is expected to further benefit from this trend.
The fund uses what it calls the Capital-Light Excess Investment Return (CLEIR), apparently enabling it to uncover businesses available at a discount to their intrinsic value. The analytical framework provides insights into the business’s cash-flow generation which are not captured by traditional valuation metrics according to the firm.
AIE currently trades on a small discount to NAV, 1.8 percent, up from a low of around 20 percent earlier this year. Although year-to-date share price performance is down 3.2 percent, relative to its peer group this is a respectable performance. While valuations were deemed high in India, given the impact of COVID, valuations in India have fallen significantly in recent months, meaning both Indian equities and the trust’s portfolio are trading on a 30 percent discount to historical book price. This might be a good entry point to one of the emerging markets giants.