Liontrust India Fund

H1 2020 review

The Liontrust India Fund returned -15.9% over the first half of the year, compared to -11.0% from the MSCI India Index*.


The discovery of a novel strain of coronavirus on 31 December in Wuhan, China set the stage for one of the most extraordinary six months in living memory. The issue remained one specific to China in the first months of the year, with the S&P500 hitting fresh all-time highs even in late February, however with the onset of March came the reality that confirmed cases outside of China and neighbouring countries had begun to increase rapidly and that early hopes of containment had proved optimistic. This in turn led – by the end of the first quarter – to almost all major economies suspending business as usual and enforcing degrees of social distancing and stay-home orders to reduce the spread of the virus, with catastrophic economic impacts. The pain of the first quarter was further compounded by the collapse in the oil market as Saudi Arabia and Russia abandoned their OPEC+ supply cut agreement and entered into a price war by increasing volumes into an already depressed demand environment. This saw prices plunge dramatically – with some contracts briefly trading at negative prices – compounding the levels of volatility already in the market.


However, the second quarter largely proved to be one of steady recovery from the worst of the panic, with markets frequently appearing at odds with the ongoing stream of concerning economic data and persistence of the coronavirus in several key global markets, most notably the US. Nevertheless, the steady opening up of economies and increase in social mobility attendant to the re-opening of economies – coupled with extraordinary fiscal and monetary response globally – saw markets trending steadily higher, in some cases recovering nearly all of the first quarter’s losses. Markets were also periodically supported by optimism for progress with a vaccine to treat the virus.


The Indian market tracked global peers in terms of direction, though underperformed both emerging and developed Markets during the market sell off in the first quarter – though it was spared the very worst that hit more commodity driven markets such as Russia and Brazil. The Indian economy had already been somewhat labouring under a sub-par growth rate during the previous year and so this recent crisis has been especially unwelcome. Whilst initially caught up in the general market sell-off, India then moved into a specific response in late March, with cities put into lockdown, and with trains and flights suspected. Given the severe hit to the economy, it was the more cyclical areas of the market that were hit the hardest, with financials, real estate and the auto sector performing worst, whilst more defensive areas such as consumer staples and healthcare were relative outperformers. Given the financial sector was already attempting to recover from a liquidity squeeze last year, the crisis was particularly felt amongst smaller lenders that were already struggling for deposits.


The Liontrust India Fund has a long-term outlook predicted on the recovery of the Indian economy led by a renewed investment cycle and domestic shift in portfolio allocations towards equities as the financial industry increasingly captures middle-class Indians. As such, the Fund’s domestic exposure and also allocation towards the mid-caps − long-term beneficiaries of the above themes − was ill-suited to the market conditions and extreme volatility through the quarter. The underperformance in the first quarter was primarily driven by overweight sector positions in more cyclical areas such as industrials, financials and real estate, though somewhat mitigated by an underweight in energy and autos. We took the opportunity to exit two positions around the end of the first quarter where we felt that the investment case had changed − namely sales in Equitas Financial and Ashoka Buildcon. The proceeds were recycled into new positions in the chemicals sector (a structurally prefered sub-sector of the Fund) with the addition of Sudarshan Chemical and Navin Fluorine.


As elsewhere, India saw an easing of Covid-related restrictions from May, however localised lockdowns persist mainly in Western India and Delhi, as well as larger cities in the South and East. The RBI responded to the harsh economic conditions by continuing its easing stance and cut policy rates by a further 0.4% in May. And although India remains one of the more fiscally constrained emerging markets and as such the government has less headroom for expansive stimulus spending, a Rs20tn economic package including liquidity easing measures, credit guarantees for small businesses and spending plans to support the economy was announced. The market rallied strongly in the second quarter led by sectors strongly geared to both domestic and global recovery – such as energy and consumer discretionary. Index heavyweight Reliance Industries has enjoyed an especially strong second quarter on the back of continued stake sales in the consumer/communications segment to major global investors, which has helped to drive down debt levels and underscore the long-term potential of these non-hydrocarbon businesses.


The Liontrust India Fund kept pace with the market recovery, outperforming the market in the second quarter, benefiting from a significant overweight in the strongly performing healthcare sector. The Fund experienced an unavoidable drag on performance during the recovery due to a maximum possible position size of 10% in Reliance due to OIEC restrictions. Given the reduced visibility, the mid-cap exposure within the Fund has been somewhat reduced to reflect these uncertainties – auto parts manufacturer Motherson Sumi was sold in the second quarter with the proceeds recycled into a position in Hindustan Unilever where we took advantage of a placing in the stock to initiate a position. We believe the outlook for the Indian market remains positive over the medium term and the portfolio offers a broad exposure to the expected recovery in the Indian economy and market. Key sector overweights are materials, healthcare, and to a lesser degree financials. Underweights are maintained (albeit reduced) in the consumer facing sectors awaiting better visibility on a return to health of consumption after the effects of the Covid-19 pandemic.


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








Liontrust India C Acc GBP






MSCI India







*Source: Financial Express, as at 30.06.20, total return (net of fees and income reinvested). Non fund-related return data sourced from Bloomberg.


**Source: Financial Express, as at 30.06.20, total return (net of fees and income reinvested), primary class.


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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.


The information and opinions provided should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Always research your own investments and (if you are not a professional or a financial adviser) consult suitability with a regulated financial adviser before investing.

Thursday, July 16, 2020, 3:28 PM