Ashoka India Equity triggers performance fee after 76% surge

Ashoka India Equity (AIE ) has triggered a performance fee after beating the index over a three-year period and still believes the surging region remains in the ‘early years’ of an upcycle.

The trust delivered underlying returns of 76% over three years to the end of June in sterling terms, beating the MSCI India IMI index benchmark’s 65% to trigger an inaugural £2.3m performance fee, annual results published last week show. 

Manager Acorn Asset Management does not charge an annual management fee and is only paid if the fund outperforms, which it did not in its first three-year period. However, since launch in July 2018, investors are sitting on handsome returns, with net asset value (NAV) rising 185% to the end of June and the share price gaining 184% versus the index’s 121.5%. 

Despite the annual redemption facility, which allows investors to tender their shares at close to asset value, the trust has increased its net assets from £46m at launch to £435m at present, with £202m added over the last 12 months through strong performance and £107.5m of share issuance.  

Fund managers Prashant Khemka and Ayush Abhijeet recorded a ‘modest’ underperformance of the benchmark over the most recent year, as the portfolio’s taxed returns totalled 35.5% and the index delivered untaxed gains of 37.7%. 

While there have been concerns about Indian valuations becoming stretched as investors pile in, Abhijeet (pictured) told Citywire he was not worried, noting that index valuations at a headline level were only 5%-10% above the average of the last decade.

The increase in valuations is driven ‘70% to 80% from earnings growth which is very important to look at, and only 20% multiple expansion’, Abhijeet said, meaning that companies are not just becoming more valuable because the stock market is rising.

While there may be a ‘little bit of pullback, which is healthy’, Abhijeet said ‘we do not try to time the market correction’.

Industrials investment

Khemka and his team focus on five key themes when picking stocks for the all-cap portfolio: financial services, consumer, healthcare, industrials and technology.

While the pair try to allocate to these themes evenly, Abhijeet said a new element had been added to the healthcare allocation, with the addition of pharmaceutical contract development and manufacturing organisations (CDMO), which provide both research and manufacturing services for drugs.

This brought ‘a new industry to India’ as CDMOs had previously been a Chinese domain, and opened the region up to work with ‘the likes of GSK, Eli Lilly, and Novo Nordisk’, Abhijeet said. 

The theme with the most potential over the next year is, however, industrials, which is ‘very strong given the capital expenditure cycle’.

Prime minister Narendra Modi’s government is investing in large-scale public infrastructure projects, spanning highways, ports, and airports, which will result in ‘an upcycle in capex’.

The recently announced budget for 2025 signalled plans to fuel growth by boosting infrastructure spending and the financial minister announced schemes to support employment and skill development in manufacturing. A new credit guarantee scheme to support labour-intensive small and medium-sized businesses was also announced.

‘There are also early signs of private capex picking up,’ said Abhijeet. ‘There is also the green transition as well as more traditional areas. There will be a very strong demand cycle [in industrials], and a multi-year capex cycle.’

He said that these cycles typically last for ‘five-plus years’, adding that ‘we are in early years of the upside’.

Industrial stocks were top contributors to the fund over the year, with Azad Engineering, which manufactures life-critical precision components, coming out on top.

The group, which supplies to companies such as General Electric and Mitsubishi Heavy Industries, has a significant cost advantage compared to other global players and a large runway for growth and signed multiple agreements with new customers.

The September factsheet shows the trust’s largest individual positions are ICICI Bank, financial services company Bajaj Finserv and tech company Tata Consultancy Services, which have respective weightings of 5.1%, 2.9% and 2.7%.

The trust’s shares closed at 273p on Monday, putting them on a 1.7% premium.