Aberdeen Global - Hozam Plaza

Indian EquityFor the year ended 30 September 2012PerformanceFor the year ended 30 September 2012, the value of the Indian Equity- A Accumulation shares increased by 9.65% compared to an increaseof 7.50% in the benchmark, the MSCI India Index.Source: Lipper, Basis: total return, NAV to NAV, net of annual charges, gross incomereinvested, USD.Manager’s reviewIndia equities rose in the review period as sentiment was lifted bythe government’s reform measures, which offset fears over slowingeconomic growth. Share prices were initially weighed down byconcerns over the impact of high inflation and borrowing costs oncorporate earnings. Policy missteps, coupled with the government’sheavy subsidy burden, also heightened worries over a credit-ratingdowngrade. The rupee weakened to new lows in June on the back ofheavy fund outflows, which were exacerbated in July by a paralysingnationwide blackout after the strained power grid collapsed. However,sentiment turned when Delhi reappointed P Chidambaram as financeminister in August and unexpectedly announced a series of reformpolicies in September. Chidambaram’s good economic track recordand the decision to liberalise the airline and multi-brand retail sectors,among several other market-friendly measures, renewed risk appetiteand helped domestic markets rebound towards the period-end.Portfolio reviewDuring the year, our holding in Godrej Consumer Products was thetop contributor to relative return, followed by Grasim Industries andICICI Bank. Godrej, a leader in personal care and household products,posted better-than-expected full-year results where solid revenuegrowth was driven by its domestic soaps and insecticides businesses aswell as expansion overseas. Grasim’s share price rallied as profitabilityimproved at its cement business, which offset weakness at its viscosestaple fibre unit. Lender ICICI Bank continued to enjoy steady loangrowth and net interest margins, while preserving asset quality anda robust capital base.Conversely, our position in GlaxoSmithKline Pharmaceuticalsdetracted the most as its shares underperformed the broaderbenchmark. Valuations appeared elevated, supported by the strengthof its product pipeline. We continue to like the company for its marketleading position and healthy cash flow generation. Motorcycle makerHero MotoCorp cost the Fund amid expectations of slower demand,despite robust quarterly results that reflected its pricing power andsolid product mix. Gujarat Gas also proved negative as its sharesfell sharply after the government ordered Indraprastha Gas (anon-holding) to lower gas tariffs in New Delhi, stoking concernsthat similar action would be taken on other utility companies,thereby hurting profit margins.There were no major changes to the portfolio during the year.OutlookThe unexpected resolve to push through reform, long overdue, hasclearly encouraged investors. Domestic share prices remain relativelywell supported. However, implementation is key. The governmenthas a chequered history in this regard, wilting in the face of histrionicopposition. We are duly cautious as a result. Yet, the ruling Congressparty could well stand its ground given the worsening economicbackdrop. New finance minister Chidambaram, a market-friendlyreformer, could prove a catalyst in returning India to its previoushigh levels of growth.Our investment strategy remains unchanged. While the top-downstory is concerning, the bottom-up picture is still attractive in manysectors of the economy. India remains a good place to invest inwell-run, vibrant companies that are backed by solid finances,sustainable businesses and good long-term growth prospects.114 Aberdeen Global - Indian Equity