Summary

• The Fund continued its rise, increasing to 7% over the month, with all but the healthcare sector contributing to the performance, taking the YTD figures to 25.8%.
• Profits taken in Ultratech Cement following positive earnings figures and used to add to holding of textile manufacturer KPR Mill.
• The Reserve Bank of India voted to cut interest rates by 25bps bringing the repo rate to 6%, the lowest level since September 2010

Market

The Fund continued its rise, increasing by nearly 7% over the month, with all but the healthcare sector contributing to the performance, taking the YTD figures to 25.8%.

The start of the month witnessed the implementation of the Goods and Services Tax (GST).  This pan-Indian tax will lead to significant changes in the investment landscape for the forthcoming decades.  Facilitating better efficiencies across industries promoting domestic investment and more critically, encouraging foreign capital back into the country. 

Indian equity markets broke up through significant levels in July, with the 50 stock Nifty Index clearing 10,000 for the first time.  Large caps, with a bias away from quality, were the index favourites over the period, which has dampened the performance of the fund on a relative basis.  However we remain confident that our philosophy to invest in strong management teams, delivering consistent earnings growth, and in the interest of all shareholders will outperform over the long term.

Fund activity

Following positive earnings figures from Ultratech Cement, we took the decision to book profits through top-slicing the position and rotating the funds into the textile manufacturer KPR, which had been added earlier in the year.  KPR continues to demonstrate solid performance and has strong execution of its plans following the increase in capacity so far in 2017. 

The IPO market has continued to deliver fresh capital to the markets, with domestic investors selectively participating in the new issues, a trend we expect to continue in the coming months.

Outlook

Subsequent to the month end, the Reserve Bank of India (RBI) voted to cut interest rates by 25bps, bringing the repo rate to 6%, the lowest level since September 2010.  The governor of the RBI was supportive of a small cut at this juncture as they await the impact of GST, the monsoon and the initial results from the latest round of pressure applied to banks to write-down bad debts. 

With this mid-summer meeting now complete, expectations are building that the RBI will step up its efforts to open up the credit lending channels, through cleaning out the non-performing loans.  Over the next few months there should be positive news on this to coincide with better earnings figures being declared by companies through the summer months.

With regards GST, it will be inherently positive for Indian trade in the years to come and is another stepping stone in Modi’s push to reduce corruption while enhancing tax revenues and the fiscal strength of the country.  Although we expect there to be some teething problems in the coming quarter or two as consumers and businesses grapple with the administrative burden of this shift, the positives will far outweigh the negatives. 

GDP growth will be lifted as the unorganised players move or are dragged into the formal economy, and India can push forward towards nominal GDP growth rates in the low double digits. India has the potential of attaining similar levels of growth to China in the late nineties and early two-thousands, ably supported by a strong reformist government and a solid central bank. 

India’s investment credentials have taken another forward step, of which there remains more to follow, this is just the start.