Unconstrained all-cap strategy focused on companies with a sustainable competitive edge and pricing power, which are able to perform throughout economic cycles
Fundamental bottom-up approach to seek well-run entrepreneurial companies with sustainable organic growth and trustworthy managements
Bias toward businesses that cater to rising domestic consumer demand and to policy-independent sectors
Under normal circumstances, the Matthews India Fund seeks to achieve its investment objective by investing at least 80% of its net assets, which include borrowings for investment purposes, in publicly traded common stocks, preferred stocks and convertible securities of companies located in India. The Fund seeks to invest in companies capable of sustainable growth based on the fundamental characteristics of those companies, including balance sheet information; number of employees; size and stability of cash flow; management’s depth, adaptability and integrity; product lines; marketing strategies; corporate governance; and financial health.
Risks
Investments in Asian securities may involve risks such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. Investing in emerging markets involves different and greater risks, as these countries are substantially smaller, less liquid and more volatile than securities markets in more developed markets. In addition, investments in a single-country fund, which is considered a non-diversified fund, may be subject to a higher degree of market risk than diversified funds because of concentration in a specific country.
These and other risks associated with investing in the Fund can be found in the
prospectus.
S&P Bombay Stock Exchange 100 Index
MSCI India Index
Geographic Focus
India
Fees & Expenses
Gross Expense Ratio
1.15%
Objective
Long-term capital appreciation
Strategy
Under normal circumstances, the Matthews India Fund seeks to achieve its investment objective by investing at least 80% of its net assets, which include borrowings for investment purposes, in publicly traded common stocks, preferred stocks and convertible securities of companies located in India. The Fund seeks to invest in companies capable of sustainable growth based on the fundamental characteristics of those companies, including balance sheet information; number of employees; size and stability of cash flow; management’s depth, adaptability and integrity; product lines; marketing strategies; corporate governance; and financial health.
Risks
Investments in Asian securities may involve risks such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. Investing in emerging markets involves different and greater risks, as these countries are substantially smaller, less liquid and more volatile than securities markets in more developed markets. In addition, investments in a single-country fund, which is considered a non-diversified fund, may be subject to a higher degree of market risk than diversified funds because of concentration in a specific country.
The risks associated with investing in the Fund can be found in the prospectus
Performance
Monthly
Quarterly
Calendar Year
As of 02/29/2024
Average Annual Total Returns
Name
1MO
3MO
YTD
1YR
3YR
5YR
10YR
Since Inception
Inception Date
Matthews India Fund - MINDX
10/31/2005
MINDX
2.13%
10.09%
5.35%
32.99%
10.51%
10.30%
12.09%
10.50%
S&P Bombay Stock Exchange 100 Index
2.11%
11.52%
2.97%
32.07%
13.03%
13.74%
12.10%
10.85%
MSCI India Index
2.77%
13.80%
5.26%
37.82%
13.31%
13.71%
10.70%
9.98%
As of 12/31/2023
Average Annual Total Returns
Name
1MO
3MO
YTD
1YR
3YR
5YR
10YR
Since Inception
Inception Date
Matthews India Fund - MINDX
10/31/2005
MINDX
4.50%
8.68%
23.10%
23.10%
9.41%
8.62%
11.65%
10.28%
S&P Bombay Stock Exchange 100 Index
8.30%
11.38%
22.44%
22.44%
13.20%
12.39%
11.65%
10.78%
MSCI India Index
8.11%
11.98%
21.29%
21.29%
12.43%
12.12%
10.08%
9.76%
For the years ended December 31st
Name
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
Matthews India Fund - MINDX
MINDX
23.10%
-9.92%
18.11%
16.45%
-0.88%
-10.09%
35.79%
-1.23%
0.90%
63.71%
S&P Bombay Stock Exchange 100 Index
22.44%
-4.53%
24.08%
13.92%
8.53%
-6.00%
41.88%
2.32%
-6.41%
31.40%
MSCI India Index
21.29%
-7.49%
26.66%
15.90%
7.58%
-7.30%
38.76%
-1.43%
-6.12%
23.87%
Source: BNY Mellon Investment Servicing (US) Inc. All performance is in US$.
MSCI and MICM are the sources of MSCI India Index performance data.
Assumes reinvestment of all dividends and/or distributions before taxes. All performance quoted represents past performance and is no guarantee of future results.Investment return and principal value will fluctuate with market conditions so that when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the return figures quoted. Returns would have been lower if certain of the Fund’s fees and expenses had not been waived. Performance differences between the Institutional class and the Investor class may arise due to differences in fees charged to each class.
Additional performance, attribution, liquidity, value at risk (VaR), security classification and holdings information is available on request for certain time periods.
Growth of a Hypothetical $10,000 Investment Since Inception
(as of 12/31/2023)
Source: BNY Mellon Investment Servicing (US) Inc. All performance is in US$.
The performance data and graph do not reflect the deduction of taxes that a shareholder would pay on dividends, capital gain distributions or redemption of fund shares.
Past performance is no guarantee of future results. High ratings and rankings does not assure favorable performance.
The Overall Morningstar® Rating for a fund is derived from a weighted-average of the performance figures associated with its three-, five- and (if applicable) ten-year ratings.
Morningstar RatingTM for funds, or "star rating", is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product's monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The Morningstar Rating does not include any adjustment for sales loads. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its three-, five-, and 10-year (if applicable) Morningstar Rating metrics. The weights are: 100% three-year rating for 36-59 months of total returns, 60% five-year rating/40% three-year rating for 60-119 months of total returns, and 50% 10-year rating/30% five-year rating/20% three-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10-year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods.
Lipper Analytical Services, Inc., rankings are based on total return, including reinvestment of dividends and capital gains for the stated periods. Funds are assigned a rank within a universe of funds similar in investment objective as determined by Lipper. For the absolute rankings shown the lower the number rank, the better the Fund performed compared to other funds in the classification group. Lipper also calculates a quartile ranking which divides the peer group into quartiles to identify funds of similar quality. Funds in the 1st or 2nd quartile had outperformed the average fund in the peer group while funds in the 3rd or 4th quartile had underperformed.
Peeyush Mittal is a Portfolio Manager at Matthews and manages the firm’s India Strategy and co-manages the Emerging Markets Equity, Emerging Markets ex China, Asia Growth and Pacific Tiger Strategies. Prior to joining the Matthews in 2015, he spent over three years at Franklin Templeton Asset Management India, most recently as a Senior Research Analyst. Previously, he was with Deutsche Asset & Wealth Management New York, from 2009 to 2011, researching U.S. and European stocks in the industrials and materials sectors. Peeyush began his career in 2003 with Scot Forge as an Industrial Engineer, and was responsible for implementing Lean Manufacturing systems on the production shop floor. Peeyush earned his M.B.A from The University of Chicago Booth School of Business. He received a Master of Science in Industrial Engineering from The Ohio State University and received a Bachelor of Technology in Metallurgical Engineering from The Indian Institute of Technology Madras. He is fluent in Hindi.
Swagato Ghosh is a Portfolio Manager at Matthews and co-manages the firm’s India Strategy. Prior to joining the firm in 2022, he was an investment analyst at Franklin Templeton India, where he was the lead cement, real estate and consumer discretionary analyst. From 2016 to 2018, he was an investment analyst at Goldman Sachs Asset management researching U.S. health care sector. From 2013 to 2015, Swagato was an equity research analyst at Jefferies India. He received his B.Tech in Mining Engineering from Indian Institute of Technology Kharagpur and his MBA from Indian Institute of Management Calcutta. Swagato is fluent in Hindi and Bengali.
Portfolio Characteristics
(as of 12/31/2023)
Fund
Benchmark
Number of Positions
70
101
Weighted Average Market Cap
$44.1 billion
$70.3 billion
Active Share
56.3
n.a.
P/E using FY1 estimates
25.5x
23.0x
P/E using FY2 estimates
20.8x
20.2x
Price/Cash Flow
20.0
15.9
Price/Book
4.3
4.0
Return On Equity
18.4
18.4
EPS Growth (3 Yr)
19.7%
22.2%
Sources: Factset Research Systems, Inc.
Risk Metrics (3 Yr Return)
(as of 12/31/2023)
Category
3YR Return Metric
Alpha
-1.63%
Beta
0.82
Upside Capture
72.29%
Downside Capture
83.13%
Sharpe Ratio
0.54
Information Ratio
-0.73
Tracking Error
5.18%
R²
88.98
-1.63%
Alpha
0.82
Beta
72.29%
Upside Capture
83.13%
Downside Capture
0.54
Sharpe Ratio
-0.73
Information Ratio
5.18%
Tracking Error
88.98
R²
Fund Risk Metrics are reflective of Investor share class.
Top 10 holdings may combine more than one security from the same issuer and related depositary receipts. Source: BNY Mellon Investment Servicing (US) Inc.
Portfolio Breakdown (%)
(as of 12/31/2023)
Sector Allocation
Market Cap Exposure
Sector
Fund
Benchmark
Difference
Financials
34.2
33.0
1.2
Information Technology
14.1
11.5
2.6
Consumer Discretionary
12.7
9.9
2.8
Industrials
11.8
7.6
4.2
Health Care
9.7
4.0
5.7
Consumer Staples
9.0
10.0
-1.0
Energy
5.3
9.9
-4.6
Materials
4.5
7.8
-3.3
Utilities
1.0
3.1
-2.1
Real Estate
0.8
0.4
0.4
Communication Services
0.2
2.8
-2.6
Liabilities in Excess of Cash and Other Assets
-3.3
0.0
-3.3
Sector data based on MSCI’s revised Global Industry Classification Standards. For more details, visit www.msci.com.
Equity market cap of issuer
Fund
Benchmark
Difference
Mega Cap (over $25B)
42.5
72.3
-29.8
Large Cap ($10B-$25B)
16.7
19.1
-2.4
Mid Cap ($3B-$10B)
26.7
8.6
18.1
Small Cap (under $3B)
17.4
0.0
17.4
Liabilities in Excess of Cash and Other Assets
-3.3
0.0
-3.3
Source: FactSet Research Systems.
Percentage values in data are rounded to the nearest tenth of one percent, so the values may not sum to 100% due to rounding. Percentage values may be derived from different data sources and may not be consistent with other Fund literature.
There is no guarantee that the Fund will pay or continue to pay distributions.
Past performance is no guarantee of future results. Investment return and principal value will fluctuate with changing market conditions so that shares, when redeemed, may be worth more or less than their original cost.
For the year ending December 31, 2023, the Matthews India Fund returned 23.10% (Investor Class) and 23.32% (Institutional Class), while its benchmark, the S&P Bombay Stock Exchange 100 Index, returned 22.44% over the same period. For the fourth quarter, the Fund returned 8.68% (Investor Class) and 8.75% (Institutional Class), while the benchmark returned 11.38%.
Market Environment
High interest rates globally, on the back of monetary policy tightening, continued for most of 2023. Through the course of this year, we saw a substantial cooling off in the price of both hard and soft commodities yet inflation continued to remain higher than the comfort level of most central banks globally. In part this was related to the unfolding Russia-Ukraine and Israel-Gaza military conflicts. These events have led to tightness in energy markets, elevated logistics costs and challenged food supplies which in turn have kept inflation from falling faster.
India was a bright spot in global markets with strong returns helped by both fundamentals and investor inflows. Domestic economic activity remained strong as the government maintained its infrastructure-related spending momentum. Consumption, however, was soft throughout the year especially at the mid and bottom-end of the income strata. Weak monsoons also delayed recovery in rural demand. In spite of this, GDP growth was above 7% in last three quarters led mainly by government capital expenditure expansion.
Results of state elections held in the later part of the year increased the probability of political continuity of incumbent Prime Minister Modi in the 2024 general elections. And while foreign flows were supportive, incremental positive domestic flows were a bigger driver of the market in 2023.
The world is also witnessing an accelerated trend by businesses of all sizes to reset their supply chains and to reduce their dependence on imports from China. Given the political and economic stability of India, more and more businesses are looking to relocate parts of their supply network to India.
Performance Contributors and Detractors
For the year, stock selection in health care, financials and information technology (IT) were the biggest contributors to relative performance. On the other hand, an underweight in utilities was the biggest detractor to relative performance. Stock selection in consumer discretionary and consumer staples were also big detractors for the year.
At the holdings level, Neuland Laboratories, Shriram Finance and Cholamandalam Investment and Finance Co. were among the top contributors to performance for the year. Neuland is an API (active pharmaceutical manufacturing) company which executed its business strategy throughout the year and posted robust numbers. Shriram and Chola are non-bank financial institutions (NBFCs) which executed well on book growth and diversification, while maintaining good credit quality during the year.
At the other end of the spectrum, Cognizant Technology Solutions, Dabur India and Restaurant Brands Asia were among the weaker performers. IT services like Cognizant were generally hurt by softening demand, especially from the U.S. Consumption stocks like Dabur and Restaurant Brands were impacted by a lack of revival in consumer demand in their specific categories.
Notable Portfolio Changes
This year, we sought to improve our holdings in sectors like consumer discretionary and staples and invested in names where growth visibility is higher. To that extent we initiated a position in Sona BLW Precision Forgings. The company’s differentiated capabilities in auto components, especially for electric vehicles (EV), gives it a sustainable competitive advantage, we believe, and hence has a long runway for growth. We exited our position in Bosch, the Indian arm of German automotive supplier Robert Bosch, as we felt the company’s growth trajectory was stagnating and the technological edge globally was not translating into business momentum in India. Similarly, we exited Dabur India which we believe has become a growth laggard within the staples space and there is no visibility on why that might change in the future.
Elsewhere, we initiated a position in Mahindra & Mahindra Financial Services to leverage the trend of NBFCs growing strongly in a strong credit growth cycle, with improving asset quality. We also exited our position in Crompton Greaves, driven by findings from our primary research process which suggested a breakdown in sales and marketing strategy and internal turmoil due to employee attrition at all levels.
Outlook
We remain optimistic about the near-term outlook for India. Inflation and interest rates have peaked out and future actions by the Indian central bank on interest rates or on liquidity should boost growth, we believe in the coming year. The government should continue its infrastructure related spend, in our view, albeit with a hiatus of few months around the elections. We believe consumption growth should also come back sooner rather than later as the prior year’s base becomes more favorable and real income growth returns. We prefer domestic sectors like real estate, utilities and financial services and other sectors like manufacturing where there are clear tailwinds from China +1 strategies among multinational companies.
We believe the government’s focus on establishing India as a manufacturing hub, to replace imports and to tap export opportunities, will continue and may even gather steam as global volatility increase. Sectors like auto and chemicals are well poised to benefit from this.
Residential real estate is in the midst of an extended up-cycle which will benefit housing developers and ancillary companies. Stricter regulations and consolidation on the supply side over the last decade has led to a much cleaner property market in India with many more investment opportunities now available.
India is also embarking on a massive power capacity augmentation over the next decade, most of which will be renewable. For this year we see growth in domestic demand for energy and the need for energy security will be strong narratives for utility and renewables companies. Global macro volatility will impact India but to a lesser extent than many other economies. All in all, unless there are any major external or internal shocks, we believe India should have another good year in terms of economic growth and stock market performance.
Top 10 holdings as of December 31, 2023. Current and future holdings are subject to change and risk.
Definitions:
The Nifty Midcap 150 Index represents 150 companies ranked 101-250 based on the market capitalization of the Nifty 500. The index represents about 15% of the free float market capitalization of the National Stock Exchange (NSE) of India.
The Purchasing Managers’ Index (PMI): A measure of the prevailing direction of economic trends in manufacturing and service sectors and based on a monthly survey of supply chain managers. The headline PMI is a number from 0 to 100. Above 50 represents an expansion compared with the previous month, under 50 represents a contraction, while a reading at 50 indicates no change.
Average Annual Total Returns - MINDX as of 12/31/2023
1YR
3YR
5YR
10YR
Since Inception
Inception Date
23.10%
9.41%
8.62%
11.65%
10.28%
10/31/2005
All performance quoted is past performance and is no guarantee of future results. Investment return and principal value will fluctuate with changing market conditions so that shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the return figures quoted. Returns would have been lower if certain of the Fund's fees and expenses had not been waived. Please see the Fund's most recent month-end performance.
Fees & Expenses
Gross Expense Ratio
1.15%
Investments in Asian securities may involve risks such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. Investing in emerging markets involves different and greater risks, as these countries are substantially smaller, less liquid and more volatile than securities markets in more developed markets. In addition, investments in a single-country fund, which is considered a non-diversified fund, may be subject to a higher degree of market risk than diversified funds because of concentration in a specific country.
The MSCI All Country Asia ex Japan Index is a free float–adjusted market capitalization–weighted index of the stock markets of China, Hong Kong, India, Indonesia, Malaysia, Pakistan, Philippines, Singapore, South Korea, Taiwan and Thailand.
The MSCI All Country Asia Pacific Index is a free float–adjusted market capitalization–weighted index of the stock markets of Australia, China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand, Pakistan, Philippines, Singapore, South Korea, Taiwan and Thailand.
The MSCI China Index is a free float-adjusted market capitalization-weighted index of Chinese equities that includes H shares listed on the Hong Kong exchange, B shares listed on the Shanghai and Shenzhen exchanges, Hong Kong-listed securities known as Red chips (issued by entities owned by national or local governments in China) and P Chips (issued by companies controlled by individuals in China and deriving substantial revenues in China) and foreign listings (e.g. ADRs).
The MSCI China All Shares Index captures large and mid-cap representation across China A shares, B shares, H shares, Red chips (issued by entities owned by national or local governments in China), P chips (issued by companies controlled by individuals in China and deriving substantial revenues in China), and foreign listings (e.g. ADRs). The index aims to reflect the opportunity set of China share classes listed in Hong Kong,Shanghai, Shenzhen and outside of China.
The MSCI Emerging Markets (EM) Asia Index is a free float-adjusted market capitalization weighted index of the stock markets of China, India, Indonesia, Malaysia, Pakistan, Philippines, South Korea, Taiwan and Thailand. The MSCI Emerging Markets Index is a free float-adjusted market capitalization-weighted index of the stock markets of Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, Saudi Arabia, South Africa, South Korea, Taiwan, Thailand, Turkey and United Arab Emirates.
The MSCI Emerging Markets Index is a free float-adjusted market capitalization-weighted index of the stock markets of Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, Saudi Arabia, South Africa, South Korea, Taiwan, Thailand, Turkey and United Arab Emirates.
The MSCI Emerging Markets ex China Index is a free float-adjusted market capitalization-weighted index that captures large and mid cap representation across 23 of the 24 Emerging Markets (EM) countries excluding China: Brazil, Chile, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Kuwait, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Saudi Arabia, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates.
The MSCI Emerging Markets Small Cap Index is a free float-adjusted market capitalization weighted small cap index of the stock markets of Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungry, India, Indonesia, Kuwait, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, Saudi Arabia, South Africa, South Korea, Taiwan Thailand, Turkey and United Arab Emirates.
The S&P Bombay Stock Exchange 100 (S&P BSE 100) Index is a free float–adjusted market capitalization–weighted index of 100 stocks listed on the Bombay Stock Exchange.
The MSCI Japan Index is a free float–adjusted market capitalization–weighted index of Japanese equities listed in Japan.
The Korea Composite Stock Price Index (KOSPI) is a market capitalization–weighted index of all common stocks listed on the Korea Stock Exchange.
The MSCI All Country Asia ex Japan Small Cap Index is a free float–adjusted market capitalization–weighted small cap index of the stock markets of China, Hong Kong, India, Indonesia, Malaysia, Pakistan, Philippines, Singapore, South Korea, Taiwan and Thailand.
The MSCI China Small Cap Index is a free float-adjusted market capitalization-weighted small cap index of the Chinese equity securities markets, including H shares listed on the Hong Kong exchange, B shares listed on the Shanghai and Shenzhen exchanges,Hong Kong-listed securities known as Red Chips (issued by entities owned by national or local governments in China) and P Chips (issued by companies controlled by individuals in China and deriving substantial revenues in China), and foreign listings (e.g., ADRs).
The MSCI India Index is a free float-adjusted market capitalization-weighted index of Indian equities listed in India.
The MSCI Korea Index is a free float-adjusted market capitalization-weighted index of Korean equities listed in Korea.
Indexes are for comparative purposes only and it is not possible to invest directly in an index.
The Benchmark used for comparison under "Portfolio Breakdown" and "Portfolio Characteristics" is the S&P Bombay Stock Exchange 100 index.
The information contained herein has been derived from sources believed to be reliable and accurate at the time of compilation, but no representation or warranty (express or implied) is made as to the accuracy or completeness of any of this information. Neither the funds nor the Investment Advisor accept any liability for losses either direct or consequential caused by the use of this information.
The views and opinions in the commentary were as of the report date, subject to change and may not reflect current views. They are not guarantees of performance or investment results and should not be taken as investment advice. Investment decisions reflect a variety of factors, and the managers reserve the right to change their views about individual stocks, sectors, and the markets at any time. As a result, the views expressed should not be relied upon as a forecast of the Fund's future investment intent. It should not be assumed that any investment will be profitable or will equal the performance of any securities or any sectors mentioned herein. The information does not constitute a recommendation to buy or sell any securities mentioned.
Commentary
Period ended December 31, 2023
For the year ending December 31, 2023, the Matthews India Fund returned 23.10% (Investor Class) and 23.32% (Institutional Class), while its benchmark, the S&P Bombay Stock Exchange 100 Index, returned 22.44% over the same period. For the fourth quarter, the Fund returned 8.68% (Investor Class) and 8.75% (Institutional Class), while the benchmark returned 11.38%.
Market Environment
High interest rates globally, on the back of monetary policy tightening, continued for most of 2023. Through the course of this year, we saw a substantial cooling off in the price of both hard and soft commodities yet inflation continued to remain higher than the comfort level of most central banks globally. In part this was related to the unfolding Russia-Ukraine and Israel-Gaza military conflicts. These events have led to tightness in energy markets, elevated logistics costs and challenged food supplies which in turn have kept inflation from falling faster.
India was a bright spot in global markets with strong returns helped by both fundamentals and investor inflows. Domestic economic activity remained strong as the government maintained its infrastructure-related spending momentum. Consumption, however, was soft throughout the year especially at the mid and bottom-end of the income strata. Weak monsoons also delayed recovery in rural demand. In spite of this, GDP growth was above 7% in last three quarters led mainly by government capital expenditure expansion.
Results of state elections held in the later part of the year increased the probability of political continuity of incumbent Prime Minister Modi in the 2024 general elections. And while foreign flows were supportive, incremental positive domestic flows were a bigger driver of the market in 2023.
The world is also witnessing an accelerated trend by businesses of all sizes to reset their supply chains and to reduce their dependence on imports from China. Given the political and economic stability of India, more and more businesses are looking to relocate parts of their supply network to India.
Performance Contributors and Detractors
For the year, stock selection in health care, financials and information technology (IT) were the biggest contributors to relative performance. On the other hand, an underweight in utilities was the biggest detractor to relative performance. Stock selection in consumer discretionary and consumer staples were also big detractors for the year.
At the holdings level, Neuland Laboratories, Shriram Finance and Cholamandalam Investment and Finance Co. were among the top contributors to performance for the year. Neuland is an API (active pharmaceutical manufacturing) company which executed its business strategy throughout the year and posted robust numbers. Shriram and Chola are non-bank financial institutions (NBFCs) which executed well on book growth and diversification, while maintaining good credit quality during the year.
At the other end of the spectrum, Cognizant Technology Solutions, Dabur India and Restaurant Brands Asia were among the weaker performers. IT services like Cognizant were generally hurt by softening demand, especially from the U.S. Consumption stocks like Dabur and Restaurant Brands were impacted by a lack of revival in consumer demand in their specific categories.
Notable Portfolio Changes
This year, we sought to improve our holdings in sectors like consumer discretionary and staples and invested in names where growth visibility is higher. To that extent we initiated a position in Sona BLW Precision Forgings. The company’s differentiated capabilities in auto components, especially for electric vehicles (EV), gives it a sustainable competitive advantage, we believe, and hence has a long runway for growth. We exited our position in Bosch, the Indian arm of German automotive supplier Robert Bosch, as we felt the company’s growth trajectory was stagnating and the technological edge globally was not translating into business momentum in India. Similarly, we exited Dabur India which we believe has become a growth laggard within the staples space and there is no visibility on why that might change in the future.
Elsewhere, we initiated a position in Mahindra & Mahindra Financial Services to leverage the trend of NBFCs growing strongly in a strong credit growth cycle, with improving asset quality. We also exited our position in Crompton Greaves, driven by findings from our primary research process which suggested a breakdown in sales and marketing strategy and internal turmoil due to employee attrition at all levels.
Outlook
We remain optimistic about the near-term outlook for India. Inflation and interest rates have peaked out and future actions by the Indian central bank on interest rates or on liquidity should boost growth, we believe in the coming year. The government should continue its infrastructure related spend, in our view, albeit with a hiatus of few months around the elections. We believe consumption growth should also come back sooner rather than later as the prior year’s base becomes more favorable and real income growth returns. We prefer domestic sectors like real estate, utilities and financial services and other sectors like manufacturing where there are clear tailwinds from China +1 strategies among multinational companies.
We believe the government’s focus on establishing India as a manufacturing hub, to replace imports and to tap export opportunities, will continue and may even gather steam as global volatility increase. Sectors like auto and chemicals are well poised to benefit from this.
Residential real estate is in the midst of an extended up-cycle which will benefit housing developers and ancillary companies. Stricter regulations and consolidation on the supply side over the last decade has led to a much cleaner property market in India with many more investment opportunities now available.
India is also embarking on a massive power capacity augmentation over the next decade, most of which will be renewable. For this year we see growth in domestic demand for energy and the need for energy security will be strong narratives for utility and renewables companies. Global macro volatility will impact India but to a lesser extent than many other economies. All in all, unless there are any major external or internal shocks, we believe India should have another good year in terms of economic growth and stock market performance.
Top 10 holdings as of December 31, 2023. Current and future holdings are subject to change and risk.
Definitions:
The Nifty Midcap 150 Index represents 150 companies ranked 101-250 based on the market capitalization of the Nifty 500. The index represents about 15% of the free float market capitalization of the National Stock Exchange (NSE) of India.
The Purchasing Managers’ Index (PMI): A measure of the prevailing direction of economic trends in manufacturing and service sectors and based on a monthly survey of supply chain managers. The headline PMI is a number from 0 to 100. Above 50 represents an expansion compared with the previous month, under 50 represents a contraction, while a reading at 50 indicates no change.
Average Annual Total Returns - MINDX as of 12/31/2023
All performance quoted is past performance and is no guarantee of future results. Investment return and principal value will fluctuate with changing market conditions so that shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the return figures quoted. Returns would have been lower if certain of the Fund's fees and expenses had not been waived. Please see the Fund's most recent month-end performance.
Fees & Expenses
Investments in Asian securities may involve risks such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. Investing in emerging markets involves different and greater risks, as these countries are substantially smaller, less liquid and more volatile than securities markets in more developed markets. In addition, investments in a single-country fund, which is considered a non-diversified fund, may be subject to a higher degree of market risk than diversified funds because of concentration in a specific country.