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India Avenue beats all to deliver one of the highest returns for 2021
He is far from a household name in the Australian funds management industry – and definitely not one of the star stock-pickers often profiled in the financial media – but few would have begrudged Mugunthan (Mugsy) Siva a quiet fist-pump after the calendar-year returns for 2021 came out, with his India Avenue Equity Fund returning a whopping 47.49 per cent (after fees) for 2021. The Sri Lankan-born fund manager has built a carefully selected high-conviction portfolio of Indian stocks, with some holdings dating back to when the fund was launched back in 2016, that have all done remarkably well at a time when India was cracking-down on black money and a stock market collapse ensued.
Not dismayed by India’s stock market volatility, Siva put together a diversified portfolio of high-quality Indian corporate success stories that had the potential to be tomorrow’s leaders. Looking back at Siva’s early stock picks, some of the high-conviction stocks selected back in 2016, such as Infosys and HCL Technologies, still remain in the portfolio today. Here are the fund’s top ten holdings as at 31 October 2016, compared to the current portfolio.
Top 10 stocks
According to an article in the Australian Financial Review, Siva’s focus on India began while working for ING, which later helped him build an asset management business in India. After returning to Australia, Siva quickly realised the knowledge and experience gained in India gave him a unique edge in stock-picking. That edge would later lay the foundation for establishing the India Avenue fund.
Looking at the fund’s top performers, he says “the stock which has contributed the most to India Avenue’s outperformance in 2021 was Indian Energy Exchange (NSE.IEX).”
IEX is India’s premier energy trading platform, providing a nationwide automated trading platform for physical delivery of electricity, renewables, and certificates. With energy efficiency being at its utmost importance (given shortages and wastage), product proliferation and cross-border trade volumes are increasing significantly. Almost all the traded volumes (above 99%) in India are via IEX’s platform. Since listing in 2017 at Rs.55 and bottoming out post COVID-19 at Rs.37, the stock price has benefited from the significant tailwind of being close to a monopoly in an addressable market which is growing rapidly and further propelled by India’s increasing focus on energy efficiency.
India Avenue bought IEX in 2018 back in 2018 when the share price was around Rs 52. Today the stock trades at approximately Rs.225.
Siva says, “The stock is not part of the MSCI India benchmark as yet. Its market cap is around A$4 billion and it is only more recently starting to come onto the radar of global fund managers like Baillie Gifford. Of course, many of India’s fastest-growing companies will quickly appear optically over-valued to many investors with broader mandates to invest like Emerging Markets, Asian or Global funds.”
“However, stocks like Indian Energy Exchange have a long runway of growth given the fundamentals of India (increasing energy intensity as wealth rises), growth of its addressable market (greater energy efficiency being paramount leading to more trading on the exchange and more proliferation in contracts) and market leadership (monopolistic market share),” says Siva.
While many investors are piling into other emerging-market economies, Siva’s decision to remain in India is paying off in spades. India is not only focusing on easing the processes in its quest for self-reliance, it is also incentivising investment and production. PM Modi has said that his commitment to deep economic planning has made India the most attractive investment destination.
With economists predicting India to be the world’s third-largest economy and third-largest consumer market by 2030, a position in Indian stocks could prove to be a long-term winner.
