Annual Financial Report

RNS Number : 1741N

Ashoka India Equity Investment Tst

20 September 2019

 

ASHOKA INDIA EQUITY INVESTMENT TRUST PLC

LEGAL ENTITY IDENTIFIER ('LEI'): 213800KX5ZS1NGAR2J89

ANNUAL FINANCIAL REPORT ANNOUNCEMENT

FOR THE PERIOD FROM INCORPORATION ON 11 MAY 2018 TO 30 JUNE 2019

Investment Objective

The investment objective of the Company is to achieve long-term capital appreciation, mainly through investment in securities listed in India and listed securities of companies with a significant presence in India.

Financial information
	As at 30 June 2019
Net asset value ('NAV') per Ordinary Share (cum income)	108.8p
Ordinary Share price	109.0p
Ordinary Share price premium to NAV1	0.2%
Net assets	£54.5 million
Performance summary1
	% change2,3
NAV total return per Ordinary Share	+11.0%
Share price total return per Ordinary Share	+9.0%
MSCI India IMI Index	+10.1%
1 These are Alternative Performance Measures for the period from commencement of operations on 6 July 2018 to 30 June 2019. Share price total return is based on an opening share price of 100p and NAV total return is based on an opening NAV after launch expenses of 98.0p per Ordinary Share. 2 Total returns in Sterling for the period 3 Source: Bloomberg
Alternative Performance Measures ('APMs')
The disclosures as indicated in footnote above are considered to represent the Company's APMs. Definitions of these APMs and other performance measures used by the Company, together with how these measures have been calculated, can be found in the Annual Report.

Strategic Report

Chairman's Statement

I am pleased to present the inaugural annual results of Ashoka India Equity Investment Trust plc (the "Company") for the period from incorporation on 11 May 2018 to 30 June 2019. The Company commenced operations on 6 July 2018 when its Ordinary Shares were admitted to trading on the London Stock Exchange's main market for listed securities. At launch, the Company received support from a wide variety of investors, many of whom have since participated in further equity issuance as detailed below.

As in my statement in the half-year report, I take this opportunity on behalf of the whole Board to welcome all investors as shareholders in the Company. India, the world's largest democracy, is also one of its fastest growing economies and, accordingly, offers investors the potential for outstanding returns over the longer term.

Board visit to Mumbai

We are privileged to have the investment expertise of the Investment Manager, Acorn Asset Management Limited and the local expertise of the Investment Adviser, White Oak Capital Management LLP. The Company's Investment Advisers based in Mumbai, and comprises an exceptional team of investment professionals led by Prashant Khemka. Our Investment Adviser is ideally placed to take advantage of local knowledge and to react quickly to changing market conditions. The Board recently visited Mumbai to meet the whole investment team and to hear from some of the management teams of our investee companies. In total, the Board met with eight companies and had a private meeting with the chief economist of Morgan Stanley, who is based in Mumbai.

It is not something the Board plans to do every year, mindful of costs to shareholders, but it was an important visit to the region and the trip underlined your Board's confidence in the Company's investment advisory team and its disciplined approach to portfolio construction and risk management.

Performance

I am pleased to report that the Company's Net Asset Value (NAV) per Ordinary Share achieved a total return of 11.0% against 10.1% by the MSCI IMI Index, the Company's benchmark, despite a short delay in a strong rising market following IPO before the net proceeds were fully invested. As you will read in the Investment Manager's report that follows, this performance was due mainly to strong stock selection across the market. The Company's share price stood at 109p at the year end, a 0.2% premium to NAV.

Share Issuance

Since IPO, the Company responded to further demand from shareholders to issue new shares, at a premium to the prevailing net asset value. At launch, 45,645,256 Ordinary Shares were allotted and issued to shareholders and between 7 July 2018 and 30 June 2019, a further 4,477,830 Ordinary Shares were issued; raising aggregate net proceeds of £4,347,000. As at the date of the Report, the total number of Ordinary Shares in issue is 55,738,078.

Reduction of Share Premium Account

As mentioned at the half-year stage and as indicated in the Company's prospectus dated 19 June 2018, the amount standing to the credit of the share premium account of the Company following IPO was cancelled and transferred to a special distributable reserve. This was completed on 4 December 2018 and the amount of £ 44,275,898 was credited to the special distributable reserve. 

Revenue and Dividends

The Company's principal objective is to provide returns through long-term capital appreciation, with income being a secondary consideration. Therefore, shareholders should not expect that the Company will pay an annual dividend, under normal circumstances. Whilst the portfolio does generate a small amount of income, this is used to defray running costs. However, if a sufficient surplus is generated, the Company may declare an annual dividend to maintain UK investment trust status. In the period under review, total income amounted to £279,000 and the Company generated a revenue loss of £195,000. Therefore, no dividend has been declared.

Redemption Facility

The Company has a redemption facility through which shareholders may request the redemption of all or part of their holding of Ordinary Shares on an annual basis. The first Redemption Point for the Ordinary Shares is 30 September 2019. I am delighted to say that, as announced on 3 September 2019, the total number of ordinary shares in respect of which valid redemption requests were received for this Redemption Point was only 126,431 (representing 0.23% of the issued share capital at that point).

Annual General Meeting

The Company's first Annual General Meeting will be held at 11.00 am on Wednesday 30 October 2019 at the offices of Stephenson Harwood, 1 Finsbury Circus, London, EC2M 7SH. I hope to see a number of shareholders attending and look forward to meeting you then.

Outlook

The Investment Manager's Report details the prevailing investment environment within India, which the Investment Manager considers to be very attractive. The re-election of the BJP-led NDA government for a second term provides a positive backdrop for business sentiment by removing the uncertainty associated with a weak coalition government.

India's economy has been growing for several years driven by many factors, including improved demographics, increased domestic consumption and infrastructure developments. The Company's portfolio consists of those individual companies that will benefit from the continued economic development of India, concentrating on mid and smaller sized companies and being style agnostic.

Being Mumbai based gives the Investment Adviser an edge over other non-local firms. The Indian market is still relatively under-researched and great care goes into selecting appropriate investments for the portfolio, seeking to avoid companies which may later prove problematic. Risk management takes time and due diligence is best conducted on home territory.  The opportunity for outstanding returns continues to remain the most attractive aspect of the investment case for India. From this perspective the outlook for patient investors remains as positive as in years past.

Andrew Watkins

Chairman

20 September 2019

Investment Adviser's Report

Market Review

Most global equities indices continued their upward trend in 2019. The S&P 500 has returned (in GBP) 13.5%, the MSCI World 10.4%, the MSCI Emerging Markets 6.7% and the MSCI AC Asia ex Japan  5.8%, since the initial public offering('IPO') of the Company in July 2018. 

Foreign portfolio investors purchased £5.8 billion worth of Indian equities, crude oil prices declined by 10.4%, and the Indian rupee appreciated by 1.4% versus Sterling during this period.

The Indian equity market has underperformed US markets but outperformed Emerging markets since inception with the MSCI India IMI index delivering 10.1%. The trend observed last year of relative underperformance of small and mid-cap ('SMID-cap') stocks against large caps continued in 2019. While the S&P BSE Large-cap index was up 13.9%, the S&P BSE Mid-cap index and the S&P BSE Small-cap index delivered -1.1% and -5.4% respectively. 

Among sectors, financials, information technology and energy outperformed while communication services and consumer discretionary underperformed.

Performance Review

The Company has delivered a Sterling NAV total return of 11.0% since IPO, outperforming the benchmark MSCI Index IMI by 0.9%.

This outperformance is attributable to strong stock-selection alpha across market cap segments which more than offset the negative headwinds from higher exposure to SMID-cap. Our holdings in financial services and technology were some of the major contributors to outperformance. 

Within the financial services space, two particular developments over the past eighteen months have been favourable for our holdings. The first is the implementation of the Insolvency and Bankruptcy Code (IBC) which has resulted in a speedier resolution of several large non-performing assets in the corporate banking sector. This has helped corporate sector banks to rapidly improve asset quality with each passing quarter. The second development has been a tightening of liquidity within the non-banking financial company (NBFC) space, triggered by defaults from a large quasi-government NBFC in the second half of 2018. The weaker NBFCs in the system have found it difficult to raise capital and some even face solvency challenges. The liquidity in the system has reduced significantly and the cost of funding for many NBFCs has gone up. All of these factors have led to consolidation in the space. As a consequence, the strongest NBFCs, a couple of which we own, have emerged even stronger out of this crisis with reduced competition. The growth and profitability outlook for such NBFCs has improved as the structural demand drivers for credit in the Indian economy continue to remain robust.

Technology is another sector where we are invested in several compelling opportunities across IT services, engineering R&D services, internet and enterprise software. Indian IT services companies have emerged as global leaders over the past two decades and continue to gain market share from their global peers. However, over the past few years growth challenges have emerged due to a technology "refresh" driven by cloud, automation and digital disruption. Many strong IT services companies were written off by the market. In our view though, the markets were under-appreciating the fact that several of these companies were doing an admirable job at successfully transitioning their business model by building strong digital capabilities and re-skilling their workforce to make them future ready. These companies are now benefitting from the ongoing large-scale adoption of digital technologies by their clients.

Engineering R&D services is another fast growing sub segment of the broader Indian technology industry where Indian companies have built deep domain capabilities and are emerging as global leaders. A spillover of the technology refresh has been the increasing adoption of software as a service (SaaS) by global enterprises in lieu of in-house, on-premise software application development. Our holdings in enterprise SaaS businesses are leaders in their niche.  

Major contributors to performance

Top 5 Contributors	Portfolio  Weight (%) As at 30 June 2019	Total Return (%)	Contribution to Return (bps)
Bajaj Finance Limited	9.3	+71.3	+382
Axis Bank Limited	9.7	+33.1	+267
HDFC Asset Management Co Limited	3.7	+92.5	+215
Info Edge India Limited	2.2	+71.6	+177
L&T Technology Services Limited	7.3	+25.0	+155

Bajaj Finance is India's leading consumer lending franchise. Leveraging its industry leading technology deployment, it straddles across consumer, SME, commercial, rural and mortgage segments, primarily catering to mass affluent customers. It has delivered solid performance in a wider environment of tight liquidity and rising costs of funding. Bajaj Finance has a very low cost of funding due to an enviable track record of prudent balance sheet risk management and this puts it on a much stronger footing compared to the peer group, several of whom face liquidity challenges as explained earlier. It has a long runway for growth on the back of new customer additions as well as cross-selling opportunities, led by continued strong execution by management.

Axis Bank is the third largest private sector bank in India with an industry leading retail liability franchise as demonstrated by one of the strongest CASA (current and saving accounts) metrics and one of the lowest cost of funds across private Indian banks. It benefits from the structural shift of market share from public sector to private sector banks. Under the previous management team, the corporate banking division saw weak credit underwriting resulting in steep credit losses. However, a new strong and inspiring leadership at the helm of the group has brought in a renewed focus by reorganizing the senior management teams and, strengthening the credit underwriting and risk functions and putting the bank on a path to deliver industry leading performance over the coming years. In addition to its core banking activities, Axis Bank also derives significant value from other financial businesses such as wealth management (fourth largest in India), capital markets and asset management, each of which has significant headroom for growth. In our view all these factors will drive group RoE upwards into the high teens over the next three years. Axis Bank is attractively valued compared to its peer group and we believe that there is a strong case for an upward re-rating of the valuation as the long-term sustainable ratios evolve towards the best in the industry.

InfoEdge is India's leading online classified advertising business. Its internet websites, Naukri.com and 99acres.com, are India's premier jobs and real estate portals respectively. Naukri.com commands a 72% website traffic share whilst 99acres.com has a 50% market share. InfoEdge has also made highly successful investments in Zomato, India's leading food delivery platform, and Policy Bazaar, India's leading online insurance aggregator. InfoEdge has a dominant market position in the fast growing online classifieds industry and is run by an entrepreneurial management team that has a long track record of superior execution and prudent capital allocation.

Major detractors to performance

Top 5 Detractors	Portfolio Weight (%) As at 30 June 2019	Total Return (%)	Contribution to Return (bps)
Maruti Suzuki India Limited	1.7	-30.2	-135
Jyothy Laboratories Limited	1.7	-25.5	-103
Persistent Systems Limited	0.0	-39.1	-97
Godrej Industries Limited	1.0	-17.6	-82
Balkrishna Industries Limited	0.0	-28.6	-80

Maruti Suzuki is the dominant player in the Indian passenger car market with 51% market share. The company has built a formidable franchise over the years by setting up a strong distribution network and continuously evolving to the changing needs of its customers. It has been witnessing volume decline in line with the cyclical slowdown in the auto sector. Passenger vehicle sales have suffered because of tight credit availability and impending cost escalations due to stricter emission norms. We expect Maruti to emerge stronger from this slowdown backed by a strategic alliance with Toyota and a strong pipeline of products.

Jyothy Laboratories is a consumer staples company with a strong portfolio across fabric care, dishwashing, household insecticides and the personal care segments. It has a dominant 71% market share in fabric whiteners and is the second largest player in the dish washing segment along with a niche presence in premium laundry and soaps. The market in India is fragmented with many unbranded, unpackaged and home-made products available, partially in the rural markets. This presents a long term structural opportunity for Jyothy to gain market share. The company's stock price declined due to lower than expected earnings in the first quarter of 2019.

Persistent Systems has been one of the Indian IT leaders in the OPD (Outsourced product development) business where it caters to leading global software vendors such as IBM, Dell, Microsoft and HP. This segment accounts for 40% of revenues. The focus in the digital segment is on implementation of leading cloud solutions and enterprise software such as Salesforce, Appian and Oracle, and digital transformation for enterprise clients. It also has a portfolio of IP led solutions accounting for another 28% of business. Despite having strong capabilities across verticals, Persistent Systems has seen prolonged weakness in revenue growth primarily due to poor sales execution which we do not see turning round anytime soon. As a result we exited our position in Persistent Systems during the period.    

Investment Outlook

The cornerstone of our investment philosophy is the belief that outsized returns are earned over time by investing in great businesses at attractive valuations. We consider a great business to be one that is well managed, scalable, and generates superior returns on incremental capital. Valuations are attractive when the current market price is at a substantial discount to intrinsic value. We look for investment opportunities that represent such powerful combinations of business and value while avoiding weaker combinations.

In our opinion, the opportunity to make sizeable returns from stock selection alpha has always been and continues to remain the most attractive aspect of the investment case for India. From this perspective the outlook remains as positive as in the past. Having said that, there are several factors that might be worth considering as investors formulate their view of the market.

The re-election of the BJP led NDA government for a second term provides a positive backdrop for business sentiment by removing the uncertainty associated with a weak coalition government. There is an increased likelihood of further structural reforms over the coming years, continuing what we have seen during the first five year term of this government. With the current electoral numbers it is expected that in a couple of years, NDA is likely to win a majority in the upper house of the Parliament as well, which should enable the government to pursue the more difficult and long awaited reforms.

At the same time, signs of moderation in growth have emerged in certain pockets of the economy over the past few months. Automobiles and rural consumption have in particular seen softness in demand partly due to reduced lending activity on account of liquidity constraints faced by many NBFCs, as well as due to weak rural income growth.  Consensus earnings growth expectations for the fiscal year 2020 have been moderating over the year from circa 20% down to a current low to mid teens level. If the demand weakness persists beyond a few months, it may lead to a further reduction in consensus earnings estimates. However, despite this risk, that level of earnings growth would still be higher than the mid-single digit earnings growth that corporate India has experienced over the last ten years.

One of the factors that is contributing to the continued growth of corporate earnings is the normalization of profitability for corporate lenders, both government owned and private. Over the last few years, the return on equity of several corporate lenders collapsed from the mid-teens to low single digits due to rising bad debts and related write-offs resulting in a material headwind to earnings growth. With the implementation of the Insolvency and Bankruptcy Code and the resultant resolution of several non-performing assets, debt quality problems at corporate banks are rapidly improving with each passing quarter as mentioned above. Whilst the corporate banking sector may represent a modest part of the total market, the sharp recovery in this segment is expected to contribute approximately ten percentage points to overall index earnings growth.

Amongst the near-term risks, as explained earlier, there has been a tightening of liquidity within the non-banking financials space since September 2018. Consequently, the rapid growth witnessed in the segment in prior years has slowed down since then. The stress continues to remain confined to a few entities, and any systemic risk to the financial system seems minimal. However, the situation needs to be monitored over the coming months.

Another prevailing risk relates to the ongoing global trade tensions, although India remains relatively insulated given that it is predominantly a domestic driven economy unlike China and many emerging markets.

On the macro front, most indicators remain stable. Consumer price inflation has been at the lower end of the historical range at three to four per cent. Fiscal and current account deficits are at or below recent averages and remain within manageable levels. This benign macroeconomic environment allows the Reserve Bank of India room to stay accommodative, if required, to support economic growth or ease liquidity constraints.

India's journey as an emerging economy can be traced back to the landmark economic liberalization of 1991 aimed at making the economy more market oriented and expanding the role of private and foreign investment. More than 25 years later, at a GDP of $2.6 trillion, India has emerged as the sixth largest and the fastest growing major economy in the world. It is riding on demographics, productivity catch-up, domestic consumption and an aspirational middle class against the backdrop of a mature democratic framework. Concurrently, a slew of structural reforms aimed at improving capital allocation and economy wide productivity are underway.

We continue to believe that the structural growth drivers of the Indian economy are deep rooted and, near-term challenges notwithstanding, India today offers a multi-faceted, multi-generational investment opportunity.

Acorn Asset Management Ltd

20 September 2019

Top Ten Holdings
		% of net
As at 30 June 2019	Sector	assets
Axis Bank Limited	Financials	9.7
Bajaj Finance Limited	Financials	9.3
HDFC Bank Limited	Financials	8.6
L&T Technology Services Limited	Industrials	7.3
NIIT Technologies Limited	Information Technology	5.6
HDFC Asset Management Co Limited	Financials	3.7
Larsen & Toubro Infotech Limited	Information Technology	3.7
Bajaj Finserv Limited	Financials	3.6
Intellect Design Arena Limited	Information Technology	3.1
Nestle' India Limited	Consumer Staples	3.0
Top ten holdings		57.6
Other holdings		41.9
Total holdings in companies		99.5
Cash and other net assets		0.5
Total Net assets		100.0

Principal risks and uncertainties

Together with the issues discussed in the Chairman's Statement and the Investment Manager's Report, the Board considers that the principal risks and uncertainties faced by the Company fall into the following main categories:
 

(i) Market risks

Economic conditions

Changes in economic conditions in India (for example, interest rates and rates of inflation, industry conditions, competition, political and diplomatic events and other factors) and securities of companies with a significant presence in India that are listed on stock exchanges outside India could substantially and adversely affect the Company's prospects.

Sectoral diversification

Concentration of investments in any one sector may result in greater volatility in the value of the Company's investments and consequently its NAV and may materially and adversely affect the performance of the Company and returns to shareholders.

Management of risks

The Investment Manager has a proven track record of investment in Indian securities.

The Company is invested in a diversified portfolio of investments.

The Company's investment policy states that no single holding will represent more than 15% of the Company's Gross Assets and no more than 40% of Gross Assets will be invested in any single sector (calculated at the time of investment). The portfolio will have between 20 to 40 holdings (although there is no guarantee that this will be the case and it may contain a lesser or greater number of holdings at any time).

Whilst the Company does not have a benchmark, the Board measures performance for reference purposes against the MSCI India IMI Index (in Sterling). The Board also monitors performance relative to the Company's peer group over a range of periods, taking into account the differing investment policies and objectives.

(ii) Corporate governance and internal control risks (including cyber security)

The Board has contractually delegated to external agencies the management of the investment portfolio, the custodial services (which include the safeguarding of the assets), the registration services and the accounting and company secretarial requirements.

The main risk areas arising from the above contracts relate to allocation of the Company's assets by the Investment Manager, and the performance of administrative, registration and custodial services. These could lead to various consequences including the loss of the Company's assets, inadequate returns to shareholders and loss of investment trust status. Cyber security risks could lead to breaches of confidentiality, loss of data records and inability to make investment decisions.

Management of risks

Each of the above contracts was entered into after full and proper consideration of the quality and cost of services offered, including the financial control systems in operation in so far as they relate to the affairs of the Company. All of the above services are subject to ongoing oversight of the Board and the performance of the principal service providers is reviewed on a regular basis. The Board monitors key personnel risks as part of its oversight of the Investment Manager. The Company's key service providers report periodically to the Board on their procedures including cyber security risks.

(iii) Regulatory risks

Breaches of Section 1158 of the Corporation Tax Act could result in loss of investment trust status. Loss of investment trust status would lead to the Company being subject to tax on any gains on the disposal of its investments. Breaches of the FCA's rules applicable to listed entities could result in financial penalties or suspension of trading of the Company's shares on the London Stock Exchange. Breaches of the Companies Act 2006, The Financial Services and Markets Act, The Alternative Investment Fund Managers' Directive, Accounting Standards, The General Data Protection Regulation, The Listing Rules, Disclosure Guidance Transparency Rules and Prospectus Rules could result in financial penalties or legal proceedings against the Company or its Directors. Failure of the Investment Manager to meet its regulatory obligations could have adverse consequences on the Company.

Management of risks

The Company has contracted out relevant services to appropriately qualified professionals. The Investment Manager and the Company Secretary report on regulatory matters to the Board on a quarterly basis. The assessment of regulatory risks forms part of the Board's risk assessment programme.

(iv) Financial risks

The Company's investment activities expose it to a variety of financial risks which include foreign currency risk and interest rate risk.

Management of risks

The investment policy states that while the Company retains the flexibility to do so, it is expected in the normal course of business that currency exposure will not be hedged. The Company does not currently have any borrowings, therefore is not exposed to interest rate risk. The Company's financial risks are disclosed in note 15 to the financial statements.

Viability statement

The Directors have assessed the viability of the Company for the Period to 30 June 2022 (the 'Period'). The Board believes that the Period, being approximately three years, is an appropriate time horizon over which to assess the viability of the Company, particularly when taking into account the long-term nature of the Company's investment strategy, which are modelled over three years and the principal risks outlined above. Based on this assessment, the Directors have a reasonable expectation that the Company will be able to continue to operate and to meet its liabilities as they fall due over the period to 30 June 2022.

In their assessment of the prospects of the Company, the Directors have considered each of the principal risks and uncertainties set out above and the liquidity and solvency of the Company. The Directors have considered the Company's income and expenditure projections and the fact that the Company's investments comprise readily realisable securities, which could, if necessary, be sold to meet the Company's funding requirements including buying back shares in order for the Company's discount control policy to be achieved. Portfolio changes, market developments, level of premium / discount to NAV and share buybacks / share issues are discussed at quarterly Board meetings. The internal control framework of the Company is subject to a formal review on at least an annual basis.

The Directors do not expect there to be any material increase in the annual ongoing charges of the Company over the Period and as the Company grows the annual ongoing charges ratio is expected to decrease. The Company's income from investments and cash realisable from the sale of its investments provide substantial cover to the Company's operating expenses, and any other costs likely to be faced by the Company over the Period of the assessment.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable laws and regulations.

Company law requires the Directors to prepare accounts for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company as at the end of the period and of the net return for the period. In preparing these accounts, the Directors are required to:

·      select suitable accounting policies and then apply them consistently;

·      make judgements and estimates which are reasonable and prudent; and

·      state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the accounts.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and which disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the accounts comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The accounts are published on the Company's website at https://www.ashokaindiaequity.com, which is maintained by the Investment Manager. The work carried out by the auditors does not involve consideration of the maintenance and integrity of these websites and, accordingly, the auditors accept no responsibility for any changes that have occurred to the accounts since being initially presented on the website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Directors' confirmation statement

The Directors each confirm to the best of their knowledge that:

(a) the accounts, prepared in accordance with applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

(b) this Annual Report includes a fair review of the development and performance of the business and position of the Company, together with a description of the principal risks and uncertainties that it faces.

Having taken advice from the Audit Committee, the Directors consider that the Annual Report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy.

For and on behalf of the Board

Andrew Watkins

Chairman

20 September 2019

Financial Statements

STATEMENT OF COMPREHENSIVE INCOME

FOR THE PERIOD FROM INCORPORATION ON 11 MAY 2018 TO 30 JUNE 2019

		Period to 30 June 2019
		Revenue	Capital	Total
	Note	£'000	£'000	£'000
Gains on investments	4	-	6,075	6,075
Gains on currency movements		-	364	364
Net investment gains		-	6,439	6,439
Income	5	279	-	279
Total income		279	6,439	6,718
Performance fees	7	-	(52)	(52)
Operating expenses	8	(474)	-	(474)
Operating profit before taxation		(195)	6,387	6,192
Taxation	9	-	(811)	(811)
Profit for the period		(195)	5,576	5,381
Return per Ordinary Share	10	(0.41)p	11.84p	11.43p

There is no other comprehensive income and therefore the 'Profit for the period' is the total comprehensive income for the period.

The total column of the above statement is the profit and loss account of the Company. The supplementary revenue and capital columns, including the earnings per Ordinary Shares, are prepared under guidance from the Association of Investment Companies.

All revenue and capital items in the above statement derive from continuing operations.

STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2019

		30 June 2019
	Note	£'000
Non-current assets
Investments held at fair value through profit or loss	4	54,234
Current assets
Cash and cash equivalents		1,128
Dividend receivable		33
Other receivables		118
		1,279
Total assets		55,513
Current liabilities
Other payables	6	(120)
Non-Current liabilities
Performance fee provision	7	(52)
Capital gains deferred tax provision	9	(811)
Total liabilities		(983)
Net assets		54,530
Equity
Share capital	12	501
Share premium account		4,372
Special distributable reserve	13	44,276
Capital reserve		5,576
Revenue reserve		(195)
Total equity		54,530
Net asset value per Ordinary Share	14	108.79p

Approved by the Board of Directors on 20 September 2019 and signed on its behalf by:

Andrew Watkins

Director

STATEMENT OF CHANGES IN EQUITY

FOR THE PERIOD FROM INCORPORATION ON 11 MAY 2018 TO 30 JUNE 2019

			Share	Special
		Share	premium	distributable	Capital	Revenue
		Capital	account	reserve	reserve	reserve	Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000
Opening balance as at 11 May 2018		-	-	-	-	-	-
Profit for the period		-	-	-	5,576	(195)	5,381
Issue of Ordinary Shares	12	501	49,535	-	-	-	50,036
Share issue costs		-	(887)	-	-	-	(887)
Transfer between share premium and special distributable reserve upon cancellation	13	-	(44,276)	44,276	-	-	-
Closing balance as at 30 June 2019		501	4,372	44,276	5,576	(195)	54,530

The Company's distributable reserves consist of the special distributable reserve, capital reserve and revenue reserve.

STATEMENT OF CASH FLOWS

FOR THE PERIOD FROM INCORPORATION ON 11 MAY 2018 TO 30 JUNE 2019

		30 June 2019
	Note	£'000
Cash flows from operating activities
Profit before taxation		6,192
Increase in receivables		(152)
Increase in payables		171
Gains on investments		(6,075)
Net cash flow from operating activities		136
Cash flows from investing activities
Purchase of investments		(82,846)
Sale of investments		34,689
Net cash flow used in investing activities		(48,157)
Cash flows from financing activities
Proceeds from issue of shares		50,036
Share issue costs		(887)
Net cash flow from financing activities		49,149
Increase in cash and cash equivalents		1,128
Cash and cash equivalents at start of period		-
Cash and cash equivalents at end of period		1,128

NOTES TO THE FINANCIAL STATEMENTS

1.    Reporting entity

Ashoka India Equity Investment Trust plc is a closed-ended investment company, registered in England and Wales on 11 May 2018. The Company's registered office is Mermaid House, 2 Puddle Dock, London EC4V 3DB. Business operations commenced on 6 July 2018 when the Company's Ordinary Shares were admitted to trading on the London Stock Exchange. The financial statements of the Company are presented for the period from incorporation 11 May 2018 to 30 June 2019.

The Company primarily invests in securities listed on any stock exchange in India and can invest in the securities of companies with a significant presence in India that are listed on stock exchanges outside India.

2.    Basis of preparation

Statement of compliance

These financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union, and the Disclosure Guidance and Transparency Rules ('DTRs') of the UK's Financial Conduct Authority.

When presentational guidance set out in the Statement of Recommended Practice ('SORP') for Investment Companies issued by the Association of Investment Companies ('the AIC') in November 2014 and updated in February 2018 is consistent with the requirements of 'IFRS', the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP.

Going concern

The Directors have adopted the going concern basis in preparing the financial statements.

The Directors have a reasonable expectation that the Company has adequate operational resources to continue in operational existence for at least twelve months from the date of approval of these financial statements.

Use of estimates and judgements

The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. There have been no significant estimates, judgements or assumptions, which have had a significant impact on the financial statements for the period.

The Indian capital gains tax provision represents an estimate of the amount of tax payable by the Company. Tax amounts payable may differ from this provision depending when the Company disposes of investments. The current provision on Indian capital gains tax is calculated based on the long term or short term nature of the investments and the applicable tax rate at the period end. The short term tax rates are 15% and the long term tax rates are 10%. The estimated tax charge is subject to regular review including a consideration of the likely period of ownership, tax rates and market valuation movements.

As disclosed in note 9 to the financial statements, the Company made a capital gains tax provision of £811,000 in respect of unrealised gains on investments held.

Basis of measurement

The financial statements have been prepared on the historical cost basis except for financial instruments at fair value through profit or loss, which are measured at fair value.

Functional and presentation currency

The Company's investments are denominated in Indian Rupees. However, the Company's shares are issued in Sterling and the majority of its investors are UK based. The Company's expenses and dividends are also paid in Sterling. Therefore, the financial statements are presented in Sterling, which is the Company's functional currency. All financial information presented in Sterling has been rounded to the nearest thousand pounds.

Comparatives

There are no comparatives as this is the Company's first accounting period.

3.   Accounting policies

(a) Investments

Upon initial recognition, investments are classified by the Company "at fair value through profit or loss account" as they are equity instruments. They are accounted for on the date they are traded and are included initially at fair value which is taken to be their cost. Subsequently quoted investments are valued at fair value which is the bid market price, or if bid price is unavailable, last traded price on the relevant exchange.

Changes in the fair value of investments held at fair value through profit or loss and gains or losses on disposal are included in the capital column of the Statement of Comprehensive Income within "gains on investments".

Investments are derecognised on the trade date of their disposal, which is the point where the Company transfers substantially all the risks and rewards of the ownership of the financial asset.

Transaction costs directly attributable to the acquisition of investments at fair value through profit or loss account are recognised under gains on investments.

(b) Foreign currency

Transactions denominated in foreign currencies are translated into Sterling at actual exchange rates as at the date of the transaction. Monetary assets and liabilities, and non-monetary assets held at fair value denominated in foreign currencies are translated into Sterling using applicable foreign exchange rates at the period end. Any gain or loss arising from a change in exchange rates subsequent to the date of the transaction is included as an exchange gain or loss and is charged to the capital column or revenue column in the Statement of Comprehensive Income as appropriate. Foreign exchange movements on investments are included in the Statement of Comprehensive Income within "gains on currency movements".

(c) Income from investments

Dividend income from shares is accounted for on the basis of ex-dividend dates. Overseas income is grossed up at the appropriate rate of tax.

Special dividends are assessed on their individual merits and may be credited to the Statement of Comprehensive Income as a capital item if considered to be closely linked to reconstructions of the investee company or other capital transactions. All other investment income is credited to the Statement of Comprehensive Income as a revenue item.

(d) Capital reserves

Profits achieved in cash by selling investments and changes in fair value arising upon the revaluation of investments that remain in the portfolio are all charged to the capital column of the Statement of Comprehensive Income and allocated to the capital reserve.

(e)  Expenses

All expenses are accounted for on an accruals basis. Expenses are recognised through the Statement of Comprehensive Income as revenue items except as follows:

Performance fees

Performance fees, if any, are payable directly by reference to the capital performance of the Company as per the Investment Management Agreement and are therefore charged to the Statement of Comprehensive Income as a capital item. No other management fees are payable.

(f) Cash and cash equivalents

Cash comprises cash at hand and demand deposits. For purposes of the statement of cash flows, cash equivalents, include bank overdrafts, are short term, highly liquid investments that are readily convertible to known amounts of cash, are subject to insignificant risks of changes in value, and are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes.

(g) Taxation

Irrecoverable taxation on dividends is recognised on an accruals basis in the Statement of Comprehensive Income.

Deferred taxation

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the statement of financial position liability method. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Investment trusts which have approval as such under Section 1158 of the Corporation Tax Act 2010 are not liable for taxation on capital gains.

(h) Standards in issue but not yet effective

The IFRS Interpretations Committee (IFRS IC) issued IFRIC 23, which clarifies how the recognition and measurement requirements of IAS 12 Income taxes, are applied where there is uncertainty over income tax treatments. The interpretation is effective for annual periods beginning on or after 1 January 2019. These standards are not expected to have a material impact on the Company's financial statements.

4.   Investment held at fair value through profit or loss

(a) Investments held at fair value through profit or loss
		As at 30 June 2019
		£'000
- Listed investments in India		54,234
Closing valuation		54,234
(b) Movements in valuation
		£'000
Opening valuation		-
Opening unrealised gains/(losses) on investments		-
Opening book cost		-
Additions, at cost		82,687
Disposals, at cost		(36,532)
Closing book cost		46,155
Revaluation of investments		8,079
Closing valuation		54,234

Transaction costs on investment purchases for the period ended 30 June 2019 amounted to £159,677 and on investment sales for the financial period to 30 June 2019 amounted to £65,171.

(c) Gains on investments
		£'000
Realised losses on disposal of investments		(1,779)
Transaction costs		(225)
Unrealised gains on investments held		8,079
Total gains on investments		6,075

Under IFRS 13 'Fair Value Measurement', an entity is required to classify investments using a fair value hierarchy that reflects the significance of the inputs used in making the measurement decision.

The following shows the analysis of financial assets recognised at fair value based on:

Level 1

The unadjusted quoted price in an active market for identical assets or liabilities that the entity can access at the measurement date.

Level 2

Inputs other than quoted prices included within Level 1 that are observable (i.e. developed using market data) for the asset or liability, either directly or indirectly.

Level 3

Inputs are unobservable (i.e. for which market data is unavailable) for the asset or liability.

The classification of the Company's investments held at fair value is detailed in the table below:

	As at 30 June 2019
	Level 1	Level 2	Level 3	Total
	£'000	£'000	£'000	£'000
Investments at fair value through profit or loss - Listed investments in India	54,234	-	-	54,234

There were no transfers between levels during the period to 30 June 2019.

Fair values of financial assets and financial liabilities

Financial assets and liabilities are held at fair value in the financial statements with the exception of short term assets and liabilities where their carrying value approximates to fair value.

5.   Income

	Period to 30 June 2019
	£'000
Income from investments
Overseas dividends	279
Total income	279

6.   Other payables

	As at 30 June 2019
	£'000
Accrued expenses	120
Total other payables	120

7.   Performance fee provision

	Period to 30 June 2019
	Revenue	Capital	Total
	£'000	£'000	£'000
Performance fee for the period	-	52	52

The Investment Manager does not receive a fixed management fee in respect of its portfolio management services to the Company. The Investment Manager will become entitled to a performance fee subject to the Company delivering excess returns versus the MSCI India IMI Index in the medium-term. The performance fee will be measured over periods of three years, with the first period ending (approximately three years from the date of Admission) on 30 June 2021.

The performance fee is calculated at a rate of 30% of the excess returns between adjusted NAV per share on the last day of the performance period and the MSCI India IMI Index (Sterling) over the performance period, adjusted for the weighted average number of Ordinary Shares in issue during the performance period.

8.   Expenses

	Period to 30 June 2019
	£'000
Administration & secretarial fees	106
Auditor's remuneration*
- Statutory audit fee	30
Broker fees	30
Custody services	6
Directors' fees	111
Board trip to India costs	6
Board meeting costs	3
Tax compliance and advice	16
Printing and public relations	49
Registrar fees	9
Legal fees	29
UKLA and other regulatory fees	16
Other expenses	63
Total	474

* Auditor's remuneration excludes VAT.

The auditors also received £51,000 (including VAT of £8,500) for non-audit IPO-related services, which have been treated as a capital expense and included in 'share issue costs' disclosed in the Statement of Changes in Equity. Non-audit IPO services were provided before the Company was listed in July 2018 and before the auditor was appointed in March 2019.

9.   Taxation

(a) Analysis of charge in the period:
	Revenue	Capital	Total
Period to 30 June 2019	£'000	£'000	£'000
Indian capital gains deferred tax provision	-	811	811
Total tax charge for the period (note 9b)	-	811	811

A deferred tax provision on Indian capital gains is calculated based on the long term or short term nature of the investments and the applicable tax rate at the period end. The short term tax rates are 15% and the long term tax rates are 10%.

(b)   Factors affecting the tax charge for the period:

The effective UK corporation tax rate for the period is 19%. The tax charge differs from the charge resulting from applying the standard rate of UK corporation tax for an investment trust company. The differences are explained below:

	Period to 30 June 2019
	£'000
Operating profit before taxation	6,192
UK Corporation tax at 19%	1,176
Effects of:
Indian capital gains deferred tax provision	811
Gains on investments not taxable	(1,223)
Overseas dividends not taxable	(53)
Unutilised management expenses	100
Total tax charge	811

The Company is not liable to UK Corporation tax on capital gains due to its status as an investment trust. The Company has an unrecognised deferred UK Corporation tax asset of £89,000 based on the prospective UK corporation tax rate of 17% in 2020. This asset has accumulated because deductible expenses exceeded taxable income for the period ended 30 June 2019. No asset has been recognised in the accounts because, given the composition of the Company's portfolio, it is not likely that this asset will be utilised in the foreseeable future.

10.   Return per Ordinary Share

	As at 30 June 2019
	Revenue	Capital	Total
Profit for the period (£'000)	(195)	5,576	5,381
Return per Ordinary Share	(0.41)p	11.84p	11.43p

Return per share is based on the profit for the period of £5,381,000 attributable to the weighted average number of Ordinary Shares in issue of 47,104,531 in the period from commencement of operations on 6 July 2018 to 30 June 2019. Revenue loss and capital profits are £195,000 and £5,576,000 respectively.

11.   Dividend

The Company's objective is to provide shareholder returns through capital growth with income being a secondary consideration. It should not be expected that the Company will pay a significant annual dividend, but the Board intends to declare such annual dividends as are necessary to maintain the Company's UK investment trust status. The Company generated a revenue loss in the period ended 30 June 2019, therefore the Directors do not recommend the payment of a final dividend in respect of the period.

12.          Share capital

	As at 30 June 2019
	No. of shares	£'000
Allotted, issued and fully paid:
Redeemable Ordinary Shares of 1p each ('Ordinary Shares')	50,123,086	501
Total	50,123,086	501

Ordinary Shares

On incorporation, the issued share capital of the Company was 1 Ordinary Share of £0.01. The Ordinary Share was transferred to investors as part of the Ordinary Share issue on 6 July 2018.

On 6 July 2018, 45,645,256 Ordinary Shares were allotted and issued to shareholders as part of the placing and offer for subscription in accordance with the Company's prospectus dated 19 June 2018; raising aggregate net proceeds of £44.8 million.

Between 7 July 2018 and 30 June 2019, 4,477,830 million Ordinary Shares have been issued; raising aggregate net proceeds of £4.3 million.

As at the date of this Annual Report, the total number of Ordinary Shares in issue is 55,738,078.

The Ordinary Shares have attached to them full voting, dividend and capital distribution rights. They confer rights of redemption.

Management shares

In addition to the above, on incorporation the Company issued 50,000 Management Shares of nominal value of £1.00 each.  

The Management Shares are paid up as to one quarter of their nominal value. The holder of the Management Shares undertook to pay or procure payment of, one quarter of the nominal value of each Management share on or before the fifth anniversary of the date of issue of the Management Shares. The Management Shares are held by an associate of the Investment Manager.

The Management Shares do not carry a right to attend or vote at general meetings of the Company unless no other shares are in issue at that time. The Management Shares have been treated as equity in accordance with IFRS.

13.          Special distributable reserve

As indicated in the Company's prospectus dated 19 June 2018, following admission of the Company's Ordinary Shares to trading on the LSE, the Directors applied to the Court and obtained a judgement on 4 December 2018 to cancel the amount standing to the credit of the share premium account of the Company. The amount of the share premium account cancelled and credited to a special distributable reserve was £44,275,898. This reserve may also be used to fund dividend payments.

14.          Net asset value ('NAV') per Ordinary Share

NAV per Ordinary Share is based on the Company's net assets of £54,530,000 attributable to the 50,123,086 Ordinary Shares in issue as at 30 June 2019.

15.        Financial instruments and capital disclosures

(i)   Market risks

The Company is subject to a number of market risks in relation to economic conditions in India. Further detail on these risks and the management of these risks are included in the Strategic report.

The Company's financial assets and liabilities as at 30 June 2019 comprised:

As at 30 June 2019	Interest bearing	Non-interest bearing	Total
	£'000	£'000	£'000
Investments	-	54,234	54,234
Total investment	-	54,234	54,234
Cash and cash equivalent		1,128	1,128
Short term debtors	-	151	151
Short term creditors	-	(120)	(120)
Long term creditors	-	(863)	(863)
Other net assets	-	296	296
Net assets	-	54,530	54,530

Market price risk sensitivity

The effect on the portfolio of a 10.0% increase or decrease in market prices would have resulted in an increase or decrease of £5,423,000 in the investments held at fair value through profit or loss at the period end date, which is equivalent to 9.9% in the net assets attributable to equity holders. This analysis assumes that all other variables remain constant.

(ii)  Liquidity risks

There is a risk that the Company's holdings may not be able to be realised at reasonable prices in a reasonable timeframe. The Investment Manager has estimated the percentages of the portfolio that could be liquidated within various timescales under normal market conditions, with the results shown as follows.

Portfolio maturity at the period end is shown below:

			Period to 30 June 2019
			%
Within one to seven days			92.3
Between seven days to one month			7.4
Between one and three months			0.3
Total			100

Financial liabilities by maturity at the period end are shown below:

			Period to 30 June 2019
			£'000
Between one and three months			120
More than one year			863
Total			983

Management of liquidity risks

The Company has a diversified portfolio. The liquidity of the portfolio is reviewed regularly by the Investment Manager and the Board.

(iii)  Currency risks

Although the Company's performance is measured in Sterling, a high proportion of the Company's assets are denominated in Indian Rupees. Changes in the exchange rate between Sterling and Indian Rupees may lead to a depreciation of the value of the Company's assets as expressed in Sterling and may reduce the returns to the Company from its investments and, therefore, negatively impact the level of dividends paid to shareholders.

Currency sensitivity

The below table shows the foreign currency profile of the Company.

Foreign currency risk profile

	As at 30 June 2019
	Investment exposure	Net monetary exposure	Total currency exposure
	£'000	£'000	£'000
Indian Rupees	54,234	263	54,497
Total	54,234	263	54,497

Based on the financial assets and liabilities at 30 June 2019 and all other things being equal, if Sterling had weakened/(strengthened) against the Indian Rupee by 10%, the impact on the Company's net assets at 30 June 2019 would have been as follows:

		As at 30 June 2019
		Increase in	Decrease in
		Fair Value	Fair Value
		£'000	£'000
Indian Rupees		5,423	(5,423)

Management of currency risks

The Company's Investment Manager monitors the currency risk of the Company's portfolio on a regular basis. Foreign currency exposure is regularly reported to the Board by the Investment Manager.

Currency risk will not be hedged using any sort of foreign currency transactions, forward transactions or derivative instruments.

(iv) Credit risks

Cash and other assets are held by the custodian.

Management of credit risks

The Company has appointed Kotak Mahindra Bank Limited (Kotak) as its custodian. The credit rating of Kotak was reviewed at the time of appointment and is reviewed on a regular basis by the Investment Manager and the Board.

The Investment Manager monitors the Company's exposure to its counterparties on a regular basis and trades in equities are performed on a delivery versus payment basis.

At 30 June 2019, the Custodian held £54,234,000 in respect of quoted investments and £1,041,000 in respect of cash on behalf of the Company.

(v) Capital management policies and procedures

The Company considers its capital to consist of its share capital of Ordinary Shares of 1p each and reserves totalling £54,530,000.

The Investment Manager and the Company's broker monitor the demand for the Company's shares and the directors review the position at Board meetings.

The Company's policy on borrowings is detailed in the Director's Report.

16.       Related party transactions

The performance fees payable to the Investment Manager are disclosed in Note 7.

Since commencement of operations on 6 July 2018 fees have been payable at an annual rate of £35,000 to the Chairman, £27,500 to the Chair of the Audit Committee, and £25,000 to the other Directors.

The Directors had the following shareholdings in the Company at 30 June 2019, all of which are beneficially owned.

	As at 30 June 2019
Andrew Watkins	63,174
Jamie Skinner	46,660
Rita Dhut	44,063
Dr Jerome Booth	19,962

17.    Post balance sheet events

There are no post balance sheet events other than as disclosed in this Annual Report.

ALTERNATIVE PERFORMANCE MEASURES
Premium
The amount, expressed as a percentage, by which the Ordinary Share price is more than the NAV per Ordinary Share.
As at 30 June 2019 (Audited)
NAV per Ordinary Share (pence)	a		108.79
Ordinary Share price (pence)	b		109.00
Premium	(b÷a)-1		0.2%
Ongoing charges
A measure, expressed as a percentage of average net assets, of the regular, recurring costs of running an investment company.
Period ended 30 June 2019 (Audited)
Average NAV	a		45,483,000
Expenses	b		474,000
Ongoing charges	(b÷a)		1.04%
Total return
A measure of performance that includes both income and capital returns.
For the operating period 6 July 2018 to 30 June 2019 (Audited)			Ordinary Share price1	NAV per Ordinary Share2
Opening at 6 July 2018 (p)	a		100.0	98.0
Closing at 30 June 2019 (p)	b		109.0	108.8
Total return	(b÷a)-1		9.0%	11.0%
n/a = not applicable.

¹Share price total return is based on an opening share price of 100p

²NAV total return is based on an opening NAV after launch expenses of 98.0p per Ordinary Share.

Financial information

This announcement does not constitute the Company's statutory accounts.  The financial information is derived from the statutory accounts, which will be delivered to the registrar of companies and will be put forward for approval at the Company's Annual General Meeting.   The auditors have reported on the accounts for the period ended 30 June 2019, their report was unqualified and did not include a statement under Section 498(2) or (3) of the Companies Act 2006.

The Annual Report for the year ended 30 June 2019 was approved on 20 September 2019.  The report will be available in electronic format on the Company's website, www.ashokaindiaequity.com.

The Annual Report will be submitted to the National Storage Mechanism and will shortly be available for inspection at: www.morningstar.co.uk/uk/NSM

This announcement contains regulated information under the Disclosure Guidance and Transparency Rules of the FCA.

Annual General Meeting

The Annual General Meeting will be held at the offices of Stephenson Harwood LLP, 1 Finsbury Circus, London, EC2M 7SH on 30 October 2019 at 11.00 am

Company Secretary and registered office:

PraxisIFM Fund Services (UK) Limited

Mermaid House

2 Puddle Dock

London

EC4V 3DB

For further information contact:

Maria Matheou

PraxisIFM Fund Services (UK) Limited

Tel: [phone]

 

END

 

 

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