Matthews India Fund

Matthews Asia Funds

Risk Considerations

  • Investment involves risk. Past performance is not a guide to future performance. It is possible to lose the principal capital of your investment.
  • The Fund invests primarily in India-related companies. Investments in such companies may be subject to increased risks such as political, tax, economic, policy, market, liquidity, trading, custody and settlement, currency, legal and regulatory risks.
  • The Fund invests primarily in equity securities, which may result in increased volatility.
  • The Fund may invest in smaller companies which are likely to carry higher risks than larger companies.
  • The Fund may invest in financial derivative instruments (“FDIs”). Risk associated with FDIs include counterparty/credit risk, liquidity risk, valuation risk, volatility risk and over-the-counter transaction risk. Exposure to FDIs may lead to a high risk of significant loss by the Fund.
  • The Fund may use hedging techniques to attempt to offset certain market risks but there is no guarantee that hedging techniques will fully and effectively achieve their desired result.
  • Investors should not invest in the Fund solely based on the information in this website. Please read the Hong Kong Offering Document carefully for further details including risk factors before investing.

Period ended 30 September 2019

For the quarter ending 30 September 2019, the Matthews India Fund returned -3.93%, while its benchmark, the S&P Bombay Stock Exchange 100 Index, returned -4.71%.

Market Environment:

Indian equities fell in the third quarter, with much of the decline occurring in late July as post-election euphoria gave way to profit-taking and deteriorating economic data. Late in the quarter, Indian policymakers surprised markets by announcing comprehensive corporate tax cuts and other stimulative measures.

Macro-environment challenges included weak demand for car sales and high-end residential real estate, worries about India's fiscal account due to muted tax collections and concerns around the stability of financial markets. The weak capital position of public-sector banks, combined with concerns about credit quality in the shadow-banking system, negatively impacted access to corporate and retail credit. This in turn led to reduced sales of consumer durables, including autos.

Weak demand resulted in a muted inflation number, creating space for the Reserve Bank of India (RBI) to continue its easy monetary policy even though the transmission of rates was not as robust as anticipated. Monsoon rains started late with scanty rainfall, but more than made up for the deficit in August and September. Rainfall in September was the highest on record in 125 years.

Business sentiment was fairly weak leading up to September and began to deteriorate. The central government, sensing weak corporate sentiment, acted promptly by steeply cutting corporate tax rates. The tax rate on new manufacturing businesses was brought down to 15%. These measures have improved confidence on the margins.

Performance Contributors and Detractors:

The Fund outperformed its benchmark during the quarter. From a sector perspective, stock selection within the information technology and communications services sectors detracted from performance. Among individual stocks, business-process outsourcing firm eClerx Services was a detractor. The company's business services include helping companies streamline and outsource repetitive tasks. Growing use of artificial intelligence, robotics and automation have negatively impacted demand for the firm's services. We continue to monitor the position.

Turning to contributors, stock selection in the financials sector was positive in the quarter. Our emphasis on investing in financials with a strong focus on credit quality and liquidity contributed to the Fund's performance. Cholamandalam Investment and Finance, a large non-banking financial services company with 500 branches across India offering auto and home-equity loans, generated positive absolute returns in the quarter even as India's broader equity market declined. With a strong management team in place, the company employs a careful process of vetting borrowers and maintains a liquid balance sheet.

Notable Portfolio Changes:

During the quarter, we exited a handful of positions including Ajanta Pharma and Eris Lifesciences. In the pharmaceutical sector, we see a trend toward greater innovation and decided to exit Ajanta Pharma and Eris Lifesciences to pursue more compelling opportunities. We also exited automotive company Ashok Leyland because of changes in its management structure.


Amid the backdrop of weak demand and favorable oil prices, we expect inflation to remain in check, opening up more room for monetary-policy easing. We expect the RBI together with the finance ministry will put measures in place that would push more transmission of rate cuts into the hands of the end consumer and consequently help improve consumption-led demand. We believe auto volumes are likely to improve on rising affordability and incentive schemes being promoted by most original equipment manufacturers.

Corporate tax cuts were a long-term measure that may help to improve fixed capital formation in the economy and consequently help create jobs. Attractive rates for new manufacturing set-ups in our opinion is likely going to incentivize U.S. and Chinese firms that are looking for alternative supply sources to diversify their manufacturing base.

India's economy continues to wrestle with the immediate negative impact of continued disruption in the financial system (particularly in the non-banking segment), the potential long-term benefits of corporate tax cuts and a gradual ease in the funding cycle. Indian policymakers appear willing to deploy more stimulus, but may be constrained by government budgets. Initiatives such as privatization of public- sector enterprises and the opening up of India's financial markets may help grow the economy over the long term. This in turn may increase government tax revenues and improve the fiscal math.

Amid declining investor sentiment, valuations in India are looking more reasonable than in the past three to four years. We currently find many reasonably priced opportunities among small companies, which we believe may offer attractive long-term growth opportunities. As always, we take a long-term approach, stay diversified and seek to invest in companies with the potential to generate attractive returns across a full market cycle.

Annual Returns For the Years Ended 31 December
Matthews India Fund 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010
I (Acc) (USD) 2.66% -9.78% 37.88% -3.05% -2.73% 54.46% -4.82% 28.80% n.a. n.a.
I (Acc) (GBP) -0.37% -4.76% 25.78% 16.54% 2.28% 63.93% -6.94% 23.43% n.a. n.a.
S&P Bombay Stock Exchange 100 Index (USD) 8.53% -6.00% 41.88% 2.32% -6.41% 31.40% -4.70% 28.62% n.a. n.a.

For YTD performance figures, please refer to the Quarterly and Monthly Performance pages.


Additional performance, attribution, liquidity, value at risk (VaR), security classification and holdings information is available on request for certain time periods.

There is no guarantee that a company will pay or continue to increase dividends.

Performance figures discussed in any of the Fund Manager Commentaries reflect that of the Institutional Accumulation Class Shares and have been calculated in USD, including ongoing charges and excluding subscription fee and redemption fee investors might have to pay. Performance details provided for the Fund are based on a NAV-to-NAV basis, with any dividends reinvested, and are net of management fees and other expenses.  Past performance information is not indicative of future performance. Investors may not get back the full amount invested.

The information contained herein has been derived from sources believed to be reliable and accurate at the time of compilation, but no representation or warranty (express or implied) is made, including, without limitation, that the information is complete or timely. Matthews Asia and its affiliates do not accept any liability for losses either direct or consequential caused by the use of this information. 

The views and opinions discussed herein were as of the report date, subject to change and may not reflect the writer›s current views. They are not guarantees of performance or investment results and should not be taken as investment advice. Investment decisions reflect a variety of factors, and the managers reserve the right to change their views about individual stocks, sectors, and the markets at any time. As a result, the views expressed should not be relied upon as a forecast of the Fund›s future investment intent. It should not be assumed that any investment will be profitable or will equal the performance of any securities or any sectors mentioned herein. The information does not constitute a recommendation to buy or sell any securities mentioned.

Sources: Brown Brothers Harriman (Luxembourg) S.C.A, Matthews Asia, FactSet Research Systems, Bloomberg