We were fairly active in the quarter, initiating positions in four equities while eliminating two holdings. Beginning with the purchases alphabetically, Axis Bank (BOM:532215) is the Fund’s first holding ever to be domiciled in India. Axis is the third-largest private sector bank in India in terms of assets and deposits. We believe the country’s strong economic growth, coupled with low financial penetration, should result in attractive long-term growth rates for the Indian banking sector. Moreover, private sector banks are well-positioned to benefit from this growth since India’s public sector banks face considerable obstacles, including bureaucratic priorities, low capital levels and meager investments in technology. The public sector banks currently possess a market share of about 70%, and we expect the private banks’ recent share gains to accelerate in the years to come. Axis’ diversified business (45% retail, 40% corporate, 15% SME (small- and medium-sized enterprises)) and strong distribution platform make it well-positioned to capture new business as it leverages its recent infrastructure spending. The company’s profitability should also improve meaningfully once credit costs normalize, and its excellent deposit franchise and relatively strong balance sheet should help fund growth while protecting against any unforeseen asset quality issues. Axis trades at a meaningful discount to our estimated intrinsic value, and we are taking advantage of its short-term price weakness to initiate a position.
From David Herro (Trades, Portfolio)'s third quarter 2017 Global Fund Commentary.
