Liontrust India Fund

Over the second quarter of the year, the Liontrust India Fund returned 7.7%, versus the MSCI India Index comparator benchmark’s 6.8% gain*.

The second quarter saw global markets and economies continue their steady recovery from the pandemic-induced turmoil of 2020. Emerging markets lagged developed markets  by a relatively small margin. The continued roll-out of the global vaccination programme progressed somewhat unevenly, with developed markets in general managing to reach higher rates of coverage than their emerging market peers. However, the quarter continued to see rolling second-wave outbreaks of the Covid-19 virus and none more dramatically than India. The first wave of the pandemic had arguably seen India outperform expectations, but the second wave hit the country hard. The April-June quarter saw new daily cases hit a record level of 400,000, double the peak rate in the first wave. Renewed lockdowns took effect though were less severe and more targeted than the initial round last year. Given this backdrop, it was impressive that India finished the quarter a one of the better performing emerging markets.

Given the severity of economic restrictions during the quarter were less dramatic than previously experienced, the stock market largely looked through the Covid resurgence and indeed the earnings downgrades so far have been relatively light. Tax collections have been robust and good early monsoon indications have helped maintain positive sentiment towards India. The RBI maintained the status quo with an accommodative stance despite a mild pick-up in inflation − though a positive monsoon should go some way to mitigating these effects. All industry sectors bar utilities recorded positive returns, with the materials sector in particular extremely strong alongside rising global commodity prices, closely followed by healthcare where the wider knock-on effects of the Covid second wave were felt positively in financial terms. 

The largest contribution to the positive quarter came from the IT sector where the Fund is mildly overweight, but with the majority of excess returns coming from stock selection. The wider sector has enjoyed a very strong operating backdrop with demand resilient to the periods of lockdown-induced economic growth, and corporate investment remaining strong, driving growth across critical software & services sub-sector. The Fund’s large position in index-heavyweight software company Infosys performed well, continuing its good performance relative to rival TCS, in which the Fund has no position. However, it was the mid-cap holdings that performed especially well with Persistent Systems and Cyient enjoying an extremely strong quarter as they continue to recover from the aggressive sell off seen in early 2020 and close the valuation gap with their large-cap peers. The Fund’s notable overweight in the materials sector was also rewarded with strong performance from holdings across the board − cement, aluminium, steel − but the chemicals sector in particular continued its extremely strong recent performance backed by extremely resilient earnings driven by robust pricing. 

Over the quarter, the Fund added positions in Tata Steel − where continued strong pricing continues to allow rapid deleveraging of the balance sheet whilst also an ongoing focus on capacity expansion in India – as well as partaking in the IPO of Krishna Institute of Medical Sciences, a hospital provider with a focus on Southern India. A position in IndusInd Bank was sold early in the quarter out of caution over the at-the-time unknown trajectory of the second Covid wave due to its highest risk exposure of holdings in the sector. 

We believe the outlook remains positive in India given the continued recovery from the pandemic disruptions of the last 18 months. The daily case rate has plummeted from over 400,000 to below 40,000, with daily deaths down to below 1,000 per day against a peak of 6,000. Whilst the overall vaccination rate continues to climb from a low base, a significant majority of the at-risk over-45 population has received a first dose and the majority of economic restrictions have been lifted. The Fund’s largest active positions are in the materials, IT and financial sectors, reflecting our highest-conviction ideas that continue to benefit from the strong economic backdrop. The Fund continues to run a significant underweight position across the consumer sectors, where we find growth and valuations less compelling.  

Discrete years' performance (%)**, to previous quarter-end:

*Source: FE Analytics as at 30.06.21

**Source: FE Analytics as at 30.06.21.

KEY RISKS

Past performance is not a guide to future performance. Do remember that the value of an investment and the income generated from them can fall as well as rise and is not guaranteed, therefore, you may not get back the amount originally invested and potentially risk total loss of capital. Investment in funds managed by the Global Equity (GE) team may involve investment in smaller companies - these stocks may be less liquid and the price swings greater than those in, for example, larger companies. Investment in funds managed by the GE team may involve foreign currencies and may be subject to fluctuations in value due to movements in exchange rates. The team may invest in emerging markets/soft currencies or in financial derivative instruments, both of which may have the effect of increasing volatility. Some of the funds managed by the GE team hold a concentrated portfolio of stocks, meaning that if the price of one of these stocks should move significantly, this may have a notable effect on the value of that portfolio.

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