20/09/2022
Metis India Opportunity Fund (MIOF) Monthly Views - August 2022
India overall, and select Indian equities in particular, offers respite in an overall low-growth, high inflation (hence, higher interest rate) world. Indian GDP is expected to be north of 7% in F2023 and the market is down 4%-8% YTD, depending on index. MIOF is up 14% YTD. The real story is not just this year but the truly exciting next decade & beyond. This is only the 75th year of India’s independence. Indian economy & capital markets have come a long way from a dozen odd brokers trading under a banyan tree in 1875 (oldest stock exchange in Asia). India is now the 5th most valued economy & stock market in the world- ahead of UK in both GDP and market cap. By end of this decade, experts say India is expected to be #3 economy/market and for once, we agree with the experts. Going even longer term- by 2050, just around in 10,000 days, India is expected to pass China and become #2 behind only USA, which, as is well known, has a host of issues that lead to large degree of stagnation. There will be $10’s of trillions of market cap created by then- in all likelihood, no other country will create so much total wealth during this time. On the ground, there seems to be a palpable sense of resilience and “can do” attitude embodided by the PM that India can finally start to seriously compete with the developed world across industries, notably manufacturing. Faster manufuacturing growth and deeper pe*******on with scale is a must to improve per capital incomes at a rapid pace.
As it is becoming clearer by the day, due to numerous fundamental factors, this will be India’s decade and tremendous sustainable wealth will be created in the next decade. Send me a message or call me to discuss these factors and how they relate to our investments. The businesses we own are uniquely postioned to capture their fair share of this wealth for ongoing investors as many of our current ~$200m market cap companies are on track to get to $1b+ market cap over next decade, if not much earlier given current indications. We have partnered with well-established Entrust Group (https://www.theentrustgroup.com/contact-us-decision-lp; talk to Mindy) as our custodian for self-directed IRA (SDIRA) retirement accounts investing into MIOF. It is a simple online account opening process enabled by solid technology. Investing tax-free in MIOF via SDIRA is an ideal vehicle for long-term growth of capital for retirement and wealth creation for future generations.
There is still 30% upside on a conservative basis for our portfolio. As always, our sole goal will be to deliver high double-digit annualized lifetime returns to ongoing investors- we are well positioned for next decade to do this for our investor-partners. A few data points which further boost our confidence of achieving this target for ourselves and our investors is the fact that the 10-year (till F2019, pre-Covid) weighted average ROE of our book is 18% and earnings growth is 22%- even including the slow growth period of 2018-2019. As savvy investors would know, future return estimate is a moving target as businesses have multiple fundamental drivers of value- mainly, sustainable sales growth & margins, taxes, and capital intensity required for the growth- so the numerical estimate of fair value can quickly change a lot based on underlying business metrics of our portfolio of businesses. We are confident in our holdings long-term business growth (which will naturally reflect in high-double digit annualized returns for ongoing investors) and would not be surprised to see positive surprises given the quality of leadership- their knowledge of their industry & ex*****on on long-term vision.
Below is the latest update to the reality of smallcap/midcap investing in India:
