Indian Equity Strategy

Overview
Investment Approach
Portfolio Manager

Overview

Strategy Facts

Capability:	Active Fundamental Equity
Strategy Inception:	February 1994
Benchmark:	MSCI India Index

Strategy Facts

Capability:	Active Fundamental Equity
Strategy Inception:	February 1994
Benchmark:	MSCI India Index

Summary

The Morgan Stanley Indian Equity Strategy seeks to deliver long term risk adjusted returns by investing in Indian equities. It integrates top down macro-thematic research with bottom-up analysis to build a growth-oriented portfolio.

Investment Approach

Philosophy

We believe that an approach integrating macro-thematic research and bottom-up analysis works best in India. Our India portfolio has a growth bias, which we think is a natural outcome of investing in a fast-growing economy like India. We do not compromise on quality of management and corporate governance. Our experience of managing money in India for over two decades has taught us that a fairly concentrated portfolio of 30-40 stocks comprising high conviction names offers the best mix of diversification¹ and activeness.

Differentiators

A PIONEER IN THE EMERGING MARKETS AND INDIA, LONG INSTITUTIONAL MEMORY

As a pioneer in emerging markets investing, MSIM has demonstrated expertise and commitment to the region. MSIM was an early mover in emerging markets, first investing in the asset class in 1986, originally in emerging Asia. We were one of the first foreign institutional investors in India in 1989, and the first foreign mutual fund in India. We have had a local office since 1993 and have a deep understanding of the local context, which we believe is critical to investing in India. We have long institutional memory of companies and managements and are able to leverage this with a stable team – the members of our investment team have been with the firm for a minimum of 10 years.

INTEGRATED TOP-DOWN, BOTTOM-UP INVESTMENT PROCESS CUSTOMIZED TO WORK IN AN INDIAN CONTEXT

Over the years, we have customized our investment process to work around the specific challenges of investing in India, and we believe this has been critical to our investing success. We follow an approach integrating macro-thematic research as well as bottom-up analysis, with an emphasis on substantial internal research. This helps ensure our portfolio differs from a typical benchmark-driven large-cap portfolio.

CONCENTRATED PORTFOLIO

Our experience of managing money in India for over two decades has taught us that a concentrated portfolio of 30-40 stocks comprising high conviction names could potentially offer the best mix of diversification and activeness. We believe that the most critical element in portfolio construction is appropriate sizing of the position. We believe in taking significant active positions, so that the alpha generated from these is meaningful in an overall portfolio context.

LEVERAGING THE EXPERTISE OF A HIGHLY EXPERIENCED AND STABLE GLOBAL INVESTMENT TEAM

As part of our Emerging Markets Equity team, Indian Equity Team contributes to and draws on the strength of our global macroeconomic, thematic and cross-regional fundamental research to help identify opportunities presented by India-specific companies. Our interactions with the global team help us in country and sector comparisons across an increasingly interconnected world. Our best ideas are routinely presented to the global team during our weekly calls or semi-annual roundtable sessions for their perspectives and critical analysis, so that we constantly re-assess our conviction levels.

GOVERNMENT AND INDUSTRY RELATIONSHIPS

Morgan Stanley’s global presence, reputation and extensive resources help the team in their fundamental research and assist the team in establishing long-term relationships with governments and invested companies.

Investment Process

The team follows a disciplined investment process that integrates top-down sector allocation with bottom-up security selection:

Analyzing macro trends is challenging in India, given that data releases come with a lag and are often subject to large revisions. To work around these shortcomings, we have created our own dashboard of high frequency indicators (for example diesel consumption, cement dispatches, power generation and automobile sales) which we believe are far more reliable and timely at picking up inflection points and trends of acceleration or deceleration in sectors compared to headline GDP growth rates or inflation numbers.

After identifying trends from the macro dashboard, the second question is how to pick stocks, particularly when the universe of listed stocks on the Indian exchanges of over 5,000²names. Over the years, we maintain (and of course constantly review and update) a short list of companies that meets our criteria on parameters such as quality, governance, size, liquidity and track record and that we feel best transmits a sector view. So, once the high frequency dashboard throws up a sector that is at an inflection point, or confirms a trend, we waste little time in making up our mind on which stocks will likely benefit from the sector tailwind. Our long institutional memory, coming from a stable and experienced team, serves us well here.

Portfolio Manager

Amay Hattangadi

Managing Director

27 years industry experience

RISK CONSIDERATIONS

Past performance is not a guarantee of future performance. There can be no assurance that the Strategy will achieve its investment objectives. Portfolios are subject to market risk, which is the possibility that the value of the investments and the income from them can go down as well as up and an investor may not get back the amount invested. Market values can change daily due to economic and other events (e.g. natural disasters, health crises, terrorism, conflicts and social unrest) that affect markets, countries, companies or governments. It is difficult to predict the timing, duration, and potential adverse effects (e.g. portfolio liquidity) of events. Accordingly, you can lose money investing in this strategy. Please be aware that this strategy may be subject to certain additional risks. In general, equity securities’ values also fluctuate in response to activities specific to a company. Investments in foreign markets entail special risks such as currency, political, economic, and market risks. The risks of investing in emerging market countries are greater than the risks generally associated with investments in foreign developed countries. Derivative instruments can be illiquid, may disproportionately increase losses and may have a potentially large negative impact on the portfolio’s performance. Strategies that specialize in a particular region or market sector are more risky than those which hold a very broad spread of investments. In addition, its value may be substantially affected by economic events in a particular region or industry.

¹ Diversification does not eliminate the risk of loss.

²Source: BSE, NSE.

This communication is only intended for and will be only distributed to persons resident in jurisdictions where such distribution or availability would not be contrary to local laws or regulations.

There is no guarantee that any investment strategy will work under all market conditions, and each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. Past performance is no guarantee of future results.

A separately managed account may not be appropriate for all investors. Separate accounts managed according to the Strategy include a number of securities and will not necessarily track the performance of any index. Please consider the investment objectives, risks and fees of the Strategy carefully before investing. A minimum asset level is required. For important information about the investment manager, please refer to Form ADV Part 2.

Any views and opinions provided are those of the portfolio management team and are subject to change at any time due to market or economic conditions and may not necessarily come to pass. Furthermore, the views will not be updated or otherwise revised to reflect information that subsequently becomes available or circumstances existing, or changes occurring. The views expressed do not reflect the opinions of all portfolio managers at Morgan Stanley Investment Management (MSIM) or the views of the firm as a whole, and may not be reflected in all the strategies and products that the Firm offers.

All information provided has been prepared solely for information purposes and does not constitute an offer or a recommendation to buy or sell any particular security or to adopt any specific investment strategy. The information herein has not been based on a consideration of any individual investor circumstances and is not investment advice, nor should it be construed in any way as tax, accounting, legal or regulatory advice. To that end, investors should seek independent legal and financial advice, including advice as to tax consequences, before making any investment decision.

This material is a general communication, which is not impartial and all information provided has been prepared solely for informational and educational purposes and does not constitute an offer or a recommendation to buy or sell any particular security or to adopt any specific investment strategy. The information herein has not been based on a consideration of any individual investor circumstances and is not investment advice, nor should it be construed in any way as tax, accounting, legal or regulatory advice. To that end, investors should seek independent legal and financial advice, including advice as to tax consequences, before making any investment decision.

OTHER CONSIDERATIONS

The MSCI India Index is a free float-adjusted market capitalization index that is designed to measure the large and mid-cap equity market performance of India. It is not possible to invest directly in an index.

The indexes are unmanaged and do not include any expenses, fees or sales charges. It is not possible to invest directly in an index. Any index referred to herein is the intellectual property (includingregistered trademarks) of the applicable licensor. Any product based on an index is in no way sponsored, endorsed, sold or promoted by the applicable licensor and it shall not have any liability with respect thereto.

The information presented represents how the portfolio management team generally implements its investment process under normal market conditions. Investment team members may change from time to time without notice.

Morgan Stanley Investment Management is the asset management division of Morgan Stanley.