JPMorgan Indian 09 February 2024
Disclosure – Non-Independent Marketing Communication
This is a non-independent marketing communication commissioned by JPMorgan Indian. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.
JPMorgan Indian is the largest and oldest investment trust devoted to Indian equities. Since September 2022 it has been in the hands of a new management team, with Amit Mehta and Sandip Patodia joining Ayaz Ebrahim. The three managers aim to invest in the highest quality Indian companies in pursuit of long-term growth. Over the course of 2023, Amit and Sandip delivered some encouraging early Performance, with some signs of a greater small and mid-cap focus and higher quality in the portfolio (see Portfolio), although the relative returns have been given back in early 2024.
JII’s portfolio is typically more expensive than the Indian market which is typically more expensive than global equity markets. However, the managers argue that both valuations are justified by the greater earnings growth potential. India is currently benefitting from various reforms introduced by a business-friendly government, a trend for relocating manufacturing away from China and strong demographic and development-driven domestic growth. All this contributes to high real GDP growth in recent years and forecasts of more to come over the next few years.
While there has been significant change in the management team, underlying this there is plenty of continuity. Amit, Sandip and Ayaz draw on the deep resources of the Emerging Market and Asia Pacific Equities Team at JPMorgan, which has a disciplined approach to identifying quality companies that is consistently applied across the emerging markets.
JII remains on a wide discount. At the time of writing this was 17.5% compared to a 10.4% weighted average for the AIC India sector A tender offer will be triggered in late 2025 if a performance target is not met (see Discount).
India remains one of the most exciting growth stories in global markets. Unlike the West and unlike China, its immediate outlook looks promising, with investment flowing into the country from multinationals in preference to China, infrastructure construction underway and the potential for rate cuts. In the long-term, the story is really exciting, with good demographics, a solid legal and regulatory system and a well-established equity market now joined by a business-friendly government which has implemented significant reforms. All this creates attractive earnings growth potential, and Amit, Sandip and Ayaz are well-resourced when it comes to identifying businesses set to benefit.
One of the ways investment trusts can deliver exceptional returns is when good NAV performance is paired with a closing discount. JII has been out of favour with the market for a while, with its disappointing performance likely a key reason. If the good performance under the new team seen for much of 2023 returns then, given India is in favour as a market and demand for Indian equities high, we see the possibility for a significant re-rating which could boost shareholder returns. There is some protection against performance faltering through the conditional tender offer and an active buyback policy.
- Long-term growth potential in India, boosted by recent business-friendly reforms
- Shares trading on a wide discount
- JII is the cheapest India trust on an OCF basis, and the largest and most liquid
- Stock-picking has hindered relative returns in recent years
- Cautious investment approach of no gearing could hold back returns in up-trending markets
- Single-country funds bring extra volatility and country-specific political and economic risks