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India Opportunity – The way aheadWealth Creation from Indian Equities

ASK Investment Managers

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• Introduction

• Investment Philosophy, Process and Themes

• Portfolio Construction

• Risk Management

• Investment Team

• Investment Offerings

• Performance Snapshot

• India Opportunity

Contents

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ASK Wealth Advisors

Since 2007

ASK Property Investment

Advisors Since 2009

Financial Planning &

Wealth Advisory

Introduction: ASK Group

Real Estate Advisory

ASK Investment Managers Since 1994

Discretionary money

management in Indian equities

ASK GROUP

ASK PraviSince 2011

Private Equity Advisory

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Introduction : ASK Investment Managers

• Leading private money management firm in India

• Singular focus on managing money in Indian equities – ‘long-only’ style

• Long-term investors

• ‘Bottom-up’ fundamentals driven, value-based stock picking

• Disciplined research and investment process

• Experienced team of 5 Portfolio Managers and 6 investment professionals, headed by a CIO

• Purely discretionary money management

• Clients include family offices, pension funds, private clients across the globe

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1) Capital Preservation

2) Capital Appreciation over a period of time

Key Investment Objectives

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• Greater certainty of earnings Vs mere quantum of earnings growth

• Superior and consistent quality of earnings Vs mere quantum of earnings growth

• High quality at a reasonable price Vs inferior quality at arithmetically “cheap” price.

Overarching Investment Philosophy and Principles

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• Price the value rather than valuing the price

• Buy “growth” businesses at “value” prices

• Disciplined investing into outstanding businesses

• Seek compounding opportunities

Investment Approach

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Value Creating Traits that we seek in our investments…

• Material Size of Opportunity

• Superior Management Quality

• Strong Earnings Growth – A Compounding Machine

• Superior Quality of Business

• Favorable Value

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Key Investment Attributes

Size of the Opportunity

• Size of pond Vs. size of fish

• Dominance

• Resilience

• Liquidity

Quality of Business

• High quality of business (Superior RoCE)

• Strong moat. Impregnability.

• Sustainability

• Key pivot of strong wealth creation

Earnings Growth

• Quantum

• Consistency

• Durability

• Predating (Early Vs Later)

• Compounding power

Value

• Favorable Price-Value Gap

• Margin of Safety

Four key investment attributes

In addition to the above, good management quality isa given constant

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Investment Themes and Concepts

Dominant Theme

Strategic ValueSize of the

OpportunityQuality of Business

Size of the Opportunity

Quality of Business

Earnings Growth ValueGrowth Strategy

Life Strategy

Indian Entrepreneur

Strategy

Earnings Growth ValueSize of the

OpportunityQuality of Business

Earnings Growth ValueSize of the

OpportunityQuality of Business

Other Key Themes

Earnings Growth

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India Select*

> * Five best ideas from each of the four concepts, making total of 20 stocks in portfolio

> Portfolio to represent an eclectic mix of size, growth, quality and value; to achieve optimal balance

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• Disciplined adherence to investment philosophy / process

• Strong in-house proprietary research

• Team bandwidth and experience

• Strong relationships and industry interfaces

• Comprehensive understanding of Indian businesses and industries

• Comprehension of long-term secular nature of India opportunity

Investment Edges

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Portfolio Construction

• Investment universe of nearly 200 companies

• Based on defined character of each strategy, a sub-universe for each strategy is determined

• Detailed evaluation of the character of business and valuation of each firm

• Strict Buy discipline: Focus on margin of safety, pre-defined levels for each strategy/concept

• Adequate sector diversification

• Optimal aggregation of about 20 stocks, to construct a stable and consistent portfolio, to generate superior returns over time

• Model portfolios for all strategies

• “Portfolio Psychographics” - proprietary portfolio review tool

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Risk Management

• Integrated risk management and review mechanism throughout the investment process

• Disciplined Buy and Sell mechanism

• Discipline of buying businesses with reasonable margin of safety

• High discount factor (of 15%) for cash flows in our financial models builds conservatism in value estimation

• 6-8 interactions per year with the management team of every portfolio company

• Individual stock cap at 10%

• Risk Manager is responsible for monitoring and supervising the risk of the portfolio and implementing the risk management framework

• Regular and ongoing monitoring and reporting

• Independence of Risk Management Function – reports to Group CFO & Head Compliance

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Investment Team

Prateek AgrawalBusiness Head & CIO

5 Portfolio Managers

Bharat ShahExecutive Director

4 Research Analysts

2 Dealers

Senior Investment

Team

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Bharat Shah – Executive Director – ASK Group• Mr. Bharat Shah holds a Bachelor’s degree in Commerce from the University of Bombay and a Post-Graduate Diploma in

Management from the Indian Institute of Management, Calcutta.

• He is also a member of the Institute of Chartered Accountants of India and a member of the Institute of Cost and WorksAccountants of India.

• He is a member of the Board at ASK and spearheading Investment Management business at the firm for over 18 years.

• He has over 29 years of experience in the field of investment management and has previously worked as CIO at Birla Sun LifeMutual Fund.

• Bharat provides strategic guidance to the CEOs in managing their respective businesses while closely supervising the IMbusiness of the group.

• Bottom-up investment philosophy, with stock picking being a special strength.

Prateek Agrawal – Business Head & CIO – ASK Investment Managers• Has 25 years of experience in capital markets with SBI Capital Markets as Head of Research (10yrs) , and Head of Equity with

ABN Amro and Bharti Axa AMCs (3.5yrs each)

• In SBI Capital Markets besides heading research he was part of team that handled VSNL privatization for the governmentand handled Hindustan Zinc for Vedanta group. On the advisory side he was actively involved in the power sector and in theoil and gas space, two areas where SBI Caps had leadership.

• At ABN AMRO MF, he was head of equity and managed / advised over $ 1 bn of equity assets ($ 300 mn domestic & $ 700mn offshore) and delivered stellar performance. He then helped set up the equity business at Bharti Axa IM in the postLehman period. He joined ASK Investment Managers as CIO in April 2011

Biography

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Investment Options - Offshore

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India Emerging Opportunities Fund (IEOF)

• Launched in 2003

• Regulated by FSC, Mauritius and SEBI, India

• Registered fund under FPI Category-II of Securities & Exchange Board of India (SEBI) FPI Regulations 2014

• Investment Manager - Enterprise Investment Managers Pvt. Ltd., Mauritius

• Investment Advisor- ASK Investment Managers Ltd.

• Fund Administrator- Apex Fund Services Ltd.

• Auditors - KPMG, Mauritius

• Bankers- SBM Bank (Mauritius) Ltd

• Custodians - Kotak Mahindra Bank Ltd. (India)

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Strategy-wise Assets Breakup

Assets under Management & Advisory (in US $ mn) as on Jan 2020

IEFIndia Select

Growth Life Strategic Others Total

1593 461 411 21 35 976 3497

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INDIA OPPORTUNITY

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Indian Economy – Size and Diversity

• In current dollars terms, the GDP stands at US$ 2.6tn.

• In purchasing power parity terms, India is the third largest economy

• Holy trinity of key bulwarks: Consumption, Savings and Investments

• Consumption accounting for 57% of GDP, Savings at 31% and Investments also at 29%

• GDP is well-balanced across Services (56% of GDP), Manufacturing and Industry (29%)

and Agriculture (15%)

• Largely domestic economy (94% of GDP), making it more resilient to external shocks

• Rising middle class

• Robust banking sector and well-developed capital markets

• Strong capital efficiency of corporate sector

• Favorable demographics

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Policy Action Expected Benefits

DemonetizationA long-term positive as the country moves to cashless modes of transactions &

better monitoring

Goods and Service Tax (GST)Creation of common national market; improved compliance and revenue

collections; estimated to increase GDP by 0.9-1.7%

Fuel DeregulationMarket determined pricing has led to more efficient utilization / consumption of

fuels

Auction of Natural ResourcesCoal, Minerals and Spectrum: increased transparency and efficiency through e-

auctions

Jandhan YojnaFinancial Inclusion: Opening of 350 million + new bank accounts for the

unbanked

Direct Benefit TransferCooking gas, fertilizer and food subsidy: Reduces leakages and government

subsidy bill

Make In India Strong focus on Manufacturing sector

Ease of Doing Business Marked improvement seen in the past few quarters

Liberalized FDI Defense sector opened up, many other sectors have been beneficiaries

Insurance Health and Insurance cover for the needy

Housing “Housing for All” by 2022 and sanitation by 2019

Electricity “Electricity for All” including un-electrified regions by 2018

Road, Irrigation and

Infrastructure

Strong ramp up in road and renewed focus on irrigation; major expenditure in

public infrastructure programme

Key Policy Reforms and Expected Benefits

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Market Outlook• GDP growth has been slowing since 1Q FY19.• Components of growth:

➢ Consumption: • Discretionary consumption remain low:

➢ FMCG: slow growth➢ Auto: decline in numbers➢ Aviation: low single digit growth

• Going forward, ➢ Consumption financing can improve, driven by:

▪ Surplus liquidity in the system of Rs 3 Lakh cr▪ Decline in corporate spreads across tenors with rating of AAA and AA

➢ Farm prospects can improve, driven by:▪ Increase in rabi acreage▪ Reservoir level optimum▪ Higher agri commodity prices, impacting food inflation

➢ Some green shoots visible➢ Investment cycle: capital formation growth moderates

• India Inc capacity utilisation down to 68.9% in Q2 FY20• Government capex impacted by fiscal situation• Real Estate: Inventory off peak, but new launches are falling too

➢ Government spending: constrained by fiscal deficit, impacting tax devolution from the centre

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Market Outlook

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Positives:

• Government measures to accelerate the economic growth (Bank recap, reduction in Corporate tax rates, addressing housing NBFC issues, etc.)

• Oil prices – range bound

• Easing liquidity conditions

• Narrowing corporate bond spreads(10Yr AAA over Gsec: 1.4% in Oct ‘19; currently 1.2%

10Yr AA over Gsec: 2.0% in Oct ‘19; currently 1.8%)

• Good crop output likely

• Inventory restocking

• IBC – Essar resolution

Negatives:

• Continuing risk aversion among banks

• Slowing global growth

• Real Estate developers

• Little room for fiscal stimulus

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Source: Bloomberg

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Market Outlook

❑ Revised Corporate Tax rates: 17% & 25.17% for new manufacturing companies

and existing non-exemption availing companies, respectively, place India at par

with its Asian peers

❑ Amongst other important measures announced which have contributed in

improving business sentiment sharply:

❖ Allowing 100% FDI in coal mining and planned auction of coal blocks

❖ Rollback of surcharge proposed in the budget from capital gains for both

domestic and foreign investors

❖ Recap of PSUs to the tune of Rs.70000cr

❖ PSU bank consolidation

❖ Steps to address housing NBFC issues

❑ Positive for FDI flows

❑ Increases competitiveness of India for manufacturing for FDI directed at both the

domestic market and for exports

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❑ Revised Corporate Tax rates: 17% & 25.17% for new manufacturing companies and existing non-

exemption availing companies, respectively, place India at par with its Asian peers

❑ Amongst other important measures announced which have contributed in improving business sentiment

sharply:

❖ Allowing 100% FDI in coal mining and planned auction of coal blocks

❖ Rollback of surcharge proposed in the budget from capital gains for both domestic and foreign

investors

❖ Recap of PSUs to the tune of Rs.70000cr

❖ PSU bank consolidation

❖ Steps to address housing NBFC issues

❑ Positive for FDI flows

❑ Increases competitiveness of India for manufacturing for FDI directed at both the domestic market and for

exports

Market Outlook

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Nifty Valuations

Source: ASK IM, Bloomberg 26

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12m Forward P/B (Nifty50) [LHS] Average P/B [LHS] 12m Forward P/E (Nifty50) [RHS] Average P/E [RHS]

Avg: 2.42

Avg: 15.55

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The Road Ahead

• Over last 25 years, Indian markets have never experienced a real bull market

• Previous cycles of 1987 – 89, 1991 – 92 and 2000 – 01 have all been shallow,

narrow, of a short duration or inadequately supported by fundamentals

• Even the rise of 2004 – 07, a relatively superior cycle, lost fundamental legs

from 2006 onwards

• The decade ahead will witness the first, real, secular, compounding and

transformational rise of Indian equity markets

• Misallocation or under-allocation to equities now will result in serious real cost

extracted from the wealth

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Correlation of Indian markets with GDP

Correlation of GDP growth vis-à-vis Corporate Earnings growth, Market Cap growth and rerating of Indian markets

Year

Real GDP

Growth (%)

Index = 100

Nominal GDP Growth

(%)

Index = 100

PAT Growth (%)

Index = 100

MCapGrowth (%)

Index = 100

MCap/GDP

Mar-06 7.9 108 14.0 114 27.6 128 71.1 171 59.0%Mar-07 8.1 117 17.1 134 39.9 178 15.0 197 88.5%

Mar-08 7.7 126 15.1 154 23.3 220 43.3 282 86.9%Mar-09 3.1 129 12.6 173 -26.4 162 -39.4 171 108.1%

Mar-10 7.9 140 15.5 200 37.1 222 97.2 337 58.2%

Mar-11 8.5 151 19.9 240 10.8 246 10.8 373 99.4%Mar-12 5.2 159 14.4 274 -6.5 230 -8.9 340 91.9%

Mar-13 5.5 168 13.8 312 1.4 233 2.2 347 73.1%Mar-14 6.4 179 13.0 353 -0.5 232 16.3 404 65.7%Mar-15 7.4 192 11.0 391 4.3 242 35.7 549 67.6%

Mar-16 8.0 207 10.5 432 -5.7 229 -6.4 514 82.7%Mar-17 8.2 224 11.6 482 31.2 300 28.1 658 70.1%

Mar-18 7.2 241 11.3 537 17.0 770 80.5%

Source: CMIE

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RISK FACTORS:Equities as an asset class carry a higher risk in comparison to debt. While risk cannot be totally eliminated, it can bemitigated through a well-designed investment strategy. The ASK Investment Managers Portfolios seek to mitigate riskand deliver superior returns through research-based investing. However, this objective may not be fully achieved due tovarious reasons such as unfavorable market movements, misjudgment by portfolio manager, adverse political oreconomic developments etc.

DISCLAIMER:Any information contained in this material shall not be deemed to constitute an advice, an offer to sell/purchase or as aninvitation or solicitation to do for security of any entity and further ASK Investment Managers Limited (ASKIM) and itsemployees/directors shall not be liable for any loss, damage, liability whatsoever for any direct or indirect loss arisingfrom the use of this information. Recipients of this information should exercise due care and caution and read the offerdocument (if necessary obtaining the advice of finance/other professionals) prior to taking any decision on the basis ofthis information.

ASK Investment Managers Limited has not independently verified all the information and opinions given in this material.Accordingly, no representative or warranty, express or implied, is made as to the accuracy, completeness or fairness ofthe information and opinions contained in this material.

Disclaimer

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Thank You