India Opportunity The way ahead - IEOF
Transcript of India Opportunity The way ahead - IEOF
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India Opportunity – The way aheadWealth Creation from Indian Equities
ASK Investment Managers
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• Introduction
• Investment Philosophy, Process and Themes
• Portfolio Construction
• Risk Management
• Investment Team
• Investment Offerings
• Performance Snapshot
• India Opportunity
Contents
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Advised by
ASK Wealth Advisors
Since 2007
ASK Property Investment
Advisors Since 2009
Financial Planning &
Wealth Advisory
Introduction: ASK Group
Real Estate Advisory
ASK Investment Managers Since 1994
Discretionary money
management in Indian equities
ASK GROUP
ASK PraviSince 2011
Private Equity Advisory
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Introduction : ASK Investment Managers
• Leading private money management firm in India
• Singular focus on managing money in Indian equities – ‘long-only’ style
• Long-term investors
• ‘Bottom-up’ fundamentals driven, value-based stock picking
• Disciplined research and investment process
• Experienced team of 5 Portfolio Managers and 6 investment professionals, headed by a CIO
• Purely discretionary money management
• Clients include family offices, pension funds, private clients across the globe
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1) Capital Preservation
2) Capital Appreciation over a period of time
Key Investment Objectives
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• Greater certainty of earnings Vs mere quantum of earnings growth
• Superior and consistent quality of earnings Vs mere quantum of earnings growth
• High quality at a reasonable price Vs inferior quality at arithmetically “cheap” price.
Overarching Investment Philosophy and Principles
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• Price the value rather than valuing the price
• Buy “growth” businesses at “value” prices
• Disciplined investing into outstanding businesses
• Seek compounding opportunities
Investment Approach
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Value Creating Traits that we seek in our investments…
• Material Size of Opportunity
• Superior Management Quality
• Strong Earnings Growth – A Compounding Machine
• Superior Quality of Business
• Favorable Value
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Key Investment Attributes
Size of the Opportunity
• Size of pond Vs. size of fish
• Dominance
• Resilience
• Liquidity
Quality of Business
• High quality of business (Superior RoCE)
• Strong moat. Impregnability.
• Sustainability
• Key pivot of strong wealth creation
Earnings Growth
• Quantum
• Consistency
• Durability
• Predating (Early Vs Later)
• Compounding power
Value
• Favorable Price-Value Gap
• Margin of Safety
Four key investment attributes
In addition to the above, good management quality isa given constant
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Investment Themes and Concepts
Dominant Theme
Strategic ValueSize of the
OpportunityQuality of Business
Size of the Opportunity
Quality of Business
Earnings Growth ValueGrowth Strategy
Life Strategy
Indian Entrepreneur
Strategy
Earnings Growth ValueSize of the
OpportunityQuality of Business
Earnings Growth ValueSize of the
OpportunityQuality of Business
Other Key Themes
Earnings Growth
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India Select*
> * Five best ideas from each of the four concepts, making total of 20 stocks in portfolio
> Portfolio to represent an eclectic mix of size, growth, quality and value; to achieve optimal balance
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• Disciplined adherence to investment philosophy / process
• Strong in-house proprietary research
• Team bandwidth and experience
• Strong relationships and industry interfaces
• Comprehensive understanding of Indian businesses and industries
• Comprehension of long-term secular nature of India opportunity
Investment Edges
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Portfolio Construction
• Investment universe of nearly 200 companies
• Based on defined character of each strategy, a sub-universe for each strategy is determined
• Detailed evaluation of the character of business and valuation of each firm
• Strict Buy discipline: Focus on margin of safety, pre-defined levels for each strategy/concept
• Adequate sector diversification
• Optimal aggregation of about 20 stocks, to construct a stable and consistent portfolio, to generate superior returns over time
• Model portfolios for all strategies
• “Portfolio Psychographics” - proprietary portfolio review tool
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Risk Management
• Integrated risk management and review mechanism throughout the investment process
• Disciplined Buy and Sell mechanism
• Discipline of buying businesses with reasonable margin of safety
• High discount factor (of 15%) for cash flows in our financial models builds conservatism in value estimation
• 6-8 interactions per year with the management team of every portfolio company
• Individual stock cap at 10%
• Risk Manager is responsible for monitoring and supervising the risk of the portfolio and implementing the risk management framework
• Regular and ongoing monitoring and reporting
• Independence of Risk Management Function – reports to Group CFO & Head Compliance
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Investment Team
Prateek AgrawalBusiness Head & CIO
5 Portfolio Managers
Bharat ShahExecutive Director
4 Research Analysts
2 Dealers
Senior Investment
Team
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Bharat Shah – Executive Director – ASK Group• Mr. Bharat Shah holds a Bachelor’s degree in Commerce from the University of Bombay and a Post-Graduate Diploma in
Management from the Indian Institute of Management, Calcutta.
• He is also a member of the Institute of Chartered Accountants of India and a member of the Institute of Cost and WorksAccountants of India.
• He is a member of the Board at ASK and spearheading Investment Management business at the firm for over 18 years.
• He has over 29 years of experience in the field of investment management and has previously worked as CIO at Birla Sun LifeMutual Fund.
• Bharat provides strategic guidance to the CEOs in managing their respective businesses while closely supervising the IMbusiness of the group.
• Bottom-up investment philosophy, with stock picking being a special strength.
Prateek Agrawal – Business Head & CIO – ASK Investment Managers• Has 25 years of experience in capital markets with SBI Capital Markets as Head of Research (10yrs) , and Head of Equity with
ABN Amro and Bharti Axa AMCs (3.5yrs each)
• In SBI Capital Markets besides heading research he was part of team that handled VSNL privatization for the governmentand handled Hindustan Zinc for Vedanta group. On the advisory side he was actively involved in the power sector and in theoil and gas space, two areas where SBI Caps had leadership.
• At ABN AMRO MF, he was head of equity and managed / advised over $ 1 bn of equity assets ($ 300 mn domestic & $ 700mn offshore) and delivered stellar performance. He then helped set up the equity business at Bharti Axa IM in the postLehman period. He joined ASK Investment Managers as CIO in April 2011
Biography
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India Emerging Opportunities Fund (IEOF)
• Launched in 2003
• Regulated by FSC, Mauritius and SEBI, India
• Registered fund under FPI Category-II of Securities & Exchange Board of India (SEBI) FPI Regulations 2014
• Investment Manager - Enterprise Investment Managers Pvt. Ltd., Mauritius
• Investment Advisor- ASK Investment Managers Ltd.
• Fund Administrator- Apex Fund Services Ltd.
• Auditors - KPMG, Mauritius
• Bankers- SBM Bank (Mauritius) Ltd
• Custodians - Kotak Mahindra Bank Ltd. (India)
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Strategy-wise Assets Breakup
Assets under Management & Advisory (in US $ mn) as on Jan 2020
IEFIndia Select
Growth Life Strategic Others Total
1593 461 411 21 35 976 3497
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Indian Economy – Size and Diversity
• In current dollars terms, the GDP stands at US$ 2.6tn.
• In purchasing power parity terms, India is the third largest economy
• Holy trinity of key bulwarks: Consumption, Savings and Investments
• Consumption accounting for 57% of GDP, Savings at 31% and Investments also at 29%
• GDP is well-balanced across Services (56% of GDP), Manufacturing and Industry (29%)
and Agriculture (15%)
• Largely domestic economy (94% of GDP), making it more resilient to external shocks
• Rising middle class
• Robust banking sector and well-developed capital markets
• Strong capital efficiency of corporate sector
• Favorable demographics
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Policy Action Expected Benefits
DemonetizationA long-term positive as the country moves to cashless modes of transactions &
better monitoring
Goods and Service Tax (GST)Creation of common national market; improved compliance and revenue
collections; estimated to increase GDP by 0.9-1.7%
Fuel DeregulationMarket determined pricing has led to more efficient utilization / consumption of
fuels
Auction of Natural ResourcesCoal, Minerals and Spectrum: increased transparency and efficiency through e-
auctions
Jandhan YojnaFinancial Inclusion: Opening of 350 million + new bank accounts for the
unbanked
Direct Benefit TransferCooking gas, fertilizer and food subsidy: Reduces leakages and government
subsidy bill
Make In India Strong focus on Manufacturing sector
Ease of Doing Business Marked improvement seen in the past few quarters
Liberalized FDI Defense sector opened up, many other sectors have been beneficiaries
Insurance Health and Insurance cover for the needy
Housing “Housing for All” by 2022 and sanitation by 2019
Electricity “Electricity for All” including un-electrified regions by 2018
Road, Irrigation and
Infrastructure
Strong ramp up in road and renewed focus on irrigation; major expenditure in
public infrastructure programme
Key Policy Reforms and Expected Benefits
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Market Outlook• GDP growth has been slowing since 1Q FY19.• Components of growth:
➢ Consumption: • Discretionary consumption remain low:
➢ FMCG: slow growth➢ Auto: decline in numbers➢ Aviation: low single digit growth
• Going forward, ➢ Consumption financing can improve, driven by:
▪ Surplus liquidity in the system of Rs 3 Lakh cr▪ Decline in corporate spreads across tenors with rating of AAA and AA
➢ Farm prospects can improve, driven by:▪ Increase in rabi acreage▪ Reservoir level optimum▪ Higher agri commodity prices, impacting food inflation
➢ Some green shoots visible➢ Investment cycle: capital formation growth moderates
• India Inc capacity utilisation down to 68.9% in Q2 FY20• Government capex impacted by fiscal situation• Real Estate: Inventory off peak, but new launches are falling too
➢ Government spending: constrained by fiscal deficit, impacting tax devolution from the centre
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Market Outlook
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Positives:
• Government measures to accelerate the economic growth (Bank recap, reduction in Corporate tax rates, addressing housing NBFC issues, etc.)
• Oil prices – range bound
• Easing liquidity conditions
• Narrowing corporate bond spreads(10Yr AAA over Gsec: 1.4% in Oct ‘19; currently 1.2%
10Yr AA over Gsec: 2.0% in Oct ‘19; currently 1.8%)
• Good crop output likely
• Inventory restocking
• IBC – Essar resolution
Negatives:
• Continuing risk aversion among banks
• Slowing global growth
• Real Estate developers
• Little room for fiscal stimulus
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India Current Account ($bn)
Source: Bloomberg
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Market Outlook
❑ Revised Corporate Tax rates: 17% & 25.17% for new manufacturing companies
and existing non-exemption availing companies, respectively, place India at par
with its Asian peers
❑ Amongst other important measures announced which have contributed in
improving business sentiment sharply:
❖ Allowing 100% FDI in coal mining and planned auction of coal blocks
❖ Rollback of surcharge proposed in the budget from capital gains for both
domestic and foreign investors
❖ Recap of PSUs to the tune of Rs.70000cr
❖ PSU bank consolidation
❖ Steps to address housing NBFC issues
❑ Positive for FDI flows
❑ Increases competitiveness of India for manufacturing for FDI directed at both the
domestic market and for exports
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❑ Revised Corporate Tax rates: 17% & 25.17% for new manufacturing companies and existing non-
exemption availing companies, respectively, place India at par with its Asian peers
❑ Amongst other important measures announced which have contributed in improving business sentiment
sharply:
❖ Allowing 100% FDI in coal mining and planned auction of coal blocks
❖ Rollback of surcharge proposed in the budget from capital gains for both domestic and foreign
investors
❖ Recap of PSUs to the tune of Rs.70000cr
❖ PSU bank consolidation
❖ Steps to address housing NBFC issues
❑ Positive for FDI flows
❑ Increases competitiveness of India for manufacturing for FDI directed at both the domestic market and for
exports
Market Outlook
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Nifty Valuations
Source: ASK IM, Bloomberg 26
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12m Forward P/B (Nifty50) [LHS] Average P/B [LHS] 12m Forward P/E (Nifty50) [RHS] Average P/E [RHS]
Avg: 2.42
Avg: 15.55
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The Road Ahead
• Over last 25 years, Indian markets have never experienced a real bull market
• Previous cycles of 1987 – 89, 1991 – 92 and 2000 – 01 have all been shallow,
narrow, of a short duration or inadequately supported by fundamentals
• Even the rise of 2004 – 07, a relatively superior cycle, lost fundamental legs
from 2006 onwards
• The decade ahead will witness the first, real, secular, compounding and
transformational rise of Indian equity markets
• Misallocation or under-allocation to equities now will result in serious real cost
extracted from the wealth
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Correlation of Indian markets with GDP
Correlation of GDP growth vis-à-vis Corporate Earnings growth, Market Cap growth and rerating of Indian markets
Year
Real GDP
Growth (%)
Index = 100
Nominal GDP Growth
(%)
Index = 100
PAT Growth (%)
Index = 100
MCapGrowth (%)
Index = 100
MCap/GDP
Mar-06 7.9 108 14.0 114 27.6 128 71.1 171 59.0%Mar-07 8.1 117 17.1 134 39.9 178 15.0 197 88.5%
Mar-08 7.7 126 15.1 154 23.3 220 43.3 282 86.9%Mar-09 3.1 129 12.6 173 -26.4 162 -39.4 171 108.1%
Mar-10 7.9 140 15.5 200 37.1 222 97.2 337 58.2%
Mar-11 8.5 151 19.9 240 10.8 246 10.8 373 99.4%Mar-12 5.2 159 14.4 274 -6.5 230 -8.9 340 91.9%
Mar-13 5.5 168 13.8 312 1.4 233 2.2 347 73.1%Mar-14 6.4 179 13.0 353 -0.5 232 16.3 404 65.7%Mar-15 7.4 192 11.0 391 4.3 242 35.7 549 67.6%
Mar-16 8.0 207 10.5 432 -5.7 229 -6.4 514 82.7%Mar-17 8.2 224 11.6 482 31.2 300 28.1 658 70.1%
Mar-18 7.2 241 11.3 537 17.0 770 80.5%
Source: CMIE
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RISK FACTORS:Equities as an asset class carry a higher risk in comparison to debt. While risk cannot be totally eliminated, it can bemitigated through a well-designed investment strategy. The ASK Investment Managers Portfolios seek to mitigate riskand deliver superior returns through research-based investing. However, this objective may not be fully achieved due tovarious reasons such as unfavorable market movements, misjudgment by portfolio manager, adverse political oreconomic developments etc.
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