Excel India Fund Commentary

As of November 30, 2011

Indian markets underperformed both emerging as well as the developed markets. Large caps continued to outperform the small and mid caps. Pharmaceuticals, Consumers and IT outperformed, while Real Estate, Metals and Banks underperformed during the month.

Fund Positioning
The Fund is currently overweight in pharmaceuticals, telecom services, and the gas sector. We increased our weight in banks and now have an overweight position in the sector. However, bias remains towards private sector banks versus public sector banks on account of their superior liability franchise and asset quality over the latter. We still remain underweight on the consumer sector due to valuations concerns.

Market & Fund Outlook
Domestic macroeconomic data released during the month was disappointing – October inflation inched up to 9.73% (higher than expected) and 2QFY12 GDP of 6.9% (in-line with reduced expectations), however lower than 7.7% in 1QFY12. Elevated interest rates, amid higher than expected inflation and global macro uncertainty impacted growth. The services sector reported robust growth, while agriculture and manufacturing reported deceleration in growth. Consumption expenditure growth remained steady, while fixed investment growth declined (lowest since March 2008). Infrastructure investment and capex revival remains the key to recover from the growth slowdown, which calls for timely policy action. The rupee underperformed other emerging market currencies and the RBI intervened to prevent a further fall in the rupee and curtail volatility. SEBI increased the current limit of FII investment in government securities and corporate bonds by $5 billion each, raising the total caps to $15 billion and $20 billion, respectively.

We believe that India’s long term structural growth is intact. The demand side looks robust with an under-penetrated, under-leveraged consumer and a rising productive demographic profile. The supply side looks well placed, with adequate capital (savings rate of 34% of GDP) and abundant labour along with a strong institutional framework.

 

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