TWO of Excel mutual funds were among the Top 10 mutual funds in Canada in 2014, outperforming more than 4,000 other mutual funds.
The Excel India Fund, series F, with a total return of 54.2%, as at December 31, 2014, as tracked by Morningstar Canada, for the 1-year period ending December 31, 2014 was the best performing mutual fund, while the Excel Chindia Fund, series F, with a total return of 32.7%, came in at number 10 by Morningstar Canada for the same period. The Indian economy is expected to grow at a rate of approximately 7% to 8% this year, more than twice as fast as the global economy.
Last year the Indian equity market was among the best performing major markets in the world, with the Indian Sensex Index up 43%, in Canadian dollar terms. We anticipate that this trend of strong growth will continue, with India being one of the biggest beneficiaries of lower oil prices.
According to a recent Merrill Lynch report, of the previous 9 times the Indian markets produced a return greater than 30%, it provided a positive return in 7 of the following years, averaging 17.5%. In addition, the research showed that market performance in the second year of a new government has also been positive, returning on average 26% on five of the last six occasions.
On the other hand, while growth in China will moderate, it will remain one of the fastest growing economies in the world. This would provide impetus to the growth of the equity markets in these two countries, benefiting investors in the Excel India Fund and the Excel Chindia Fund.
Active on-the-ground management leads to outperformance
Sub-advised by multiple-award winning Birla Sun Life Asset Management Company (“Birla”), the Excel India Fund outperformed the Indian Sensex Index by over 12% and is on its way to becoming best performing mutual fund in Canada in 2015.
Birla, the fourth largest asset manager in India, with approximately US$17 billion in assets under management, utilizes a growth at a reasonable price strategy, combined with intensive bottom-up research that identifies the best growth opportunities.
Birla’s competitive advantage stems from managing on-the-ground, giving it access to companies that are not listed on the stock market index. Approximately 40% of the Excel India Fund is invested in high growth large and mid cap stocks which are outside of the index. This, combined with positive sector and stock selection, contributed to the Excel India Fund’s outperformance.
Therefore, the Excel India Fund is well-positioned to take advantage of the majority Modi government’s reforms with overweights in industrials, financials and consumer discretionary. Investments in the consumer discretionary sector reflect a strong conviction in the automobile and auto-ancillary industries, with major holdings such as Tata Motors, Maruti Suzuki and Motherson Sumi. These industries will benefit from lower interest rates, increasing auto ownership and improving disposable income levels in India.
The Modi government has made infrastructure one of their priorities. Therefore, the Excel India Fund is overweight on industrials to benefit from proposed reforms and infrastructure spending. Large FDI allocations from China, Japan and the USA will be invested in infrastructure projects over the next few years. Infrastructure holdings in the Excel India Fund include Larsen & Toubro Limited, IRB Infrastructure Developers Limited and J Kumar Infraprojects Limited. These companies have significantly contributed to the Excel India Fund’s performance in 2014.
The Excel India Fund also has a large weighting in financials, namely ICICI Bank, HDFC Bank and HDFC Limited. We believe an improving Indian economy means higher loan growth and declining provisions, which will increase their bottom line net income. The end result is a much higher total return on equity and a valuation re-rating. Moreover, Indian banks should benefit greatly from the expected increase in infrastructure spending over the next decade.