The Fund had a quiet month, with two small additional purchases to existing positions. We used some stock weakness to add to both InterGlobe Aviation and State Bank of India. In addition we took part in a stock buyback of Infosys, which was conducted at levels considerably above the current market price.
A number of stocks performed strongly over the last quarter of 2017, as well as a recovery in some sectors where the Fund is overweight. Our participation in a number of new listings has also worked well, with Godrej Agrovet, Dixons Technologies and Security and Intelligence Services all appreciating more than the market.
Much has been made about the impact that domestic liquidity has had on market returns. Data for 2017 showed that foreign investors allocated US$7.4bn to India, the highest since 2014 although well below levels we have previously seen. A record US$12bn was invested by domestic institutional investors, a trend we see continuing. Despite this liquidity India did not outperform other emerging markets, despite pushing through with ground-breaking reforms that set the country up well for the future.
One reason foreign investors didn’t allocate more to India is valuations. Some sectors are undoubtedly trading at eye-watering levels, particularly fast-moving consumer goods. We remain underweight here as we believe the market leadership will rotate to more economically sensitive sectors as confidence in the economic recovery gathers pace over 2018. Manufacturing data continues to improve and the ongoing push by government on infrastructure and housing investment will boost growth and employment. In addition the continued robust global economy will help exports, and attract further inward investment from global corporations into India. We think that better growth will finally lead to a more consistent earnings outlook for India.
Politically there are a number of state elections in 2018 that will be an important indicator of sentiment as we approach the national election expected sometime in the first half of 2019. For this reason, we expect government to be focused on implementation and growth, rather than further reform. For that we will have to wait and see how Modi does in 2019.
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