JPMorgan Indian (JII) aims to generate long-term capital growth by investing in high-quality companies benefitting from exciting secular growth trends in Asia such as the growing young demographic, urbanisation and digitalisation.
Managers Rukhshad Shroff and Rajendra Nair have worked together on the portfolio since 2003, giving them extensive experience in Indian equities. They have access to the vast Emerging Markets and Asia Pacific (EMAP) equity team at JPMorgan, made up of sector specialists who can place Indian companies in the context of their international peers.
The managers have a highly active and stable stock-picking approach intended to look through short-term noise and identify those companies with superior growth prospects over at least five years. Over the long term their approach has led to steady outperformance of the MSCI India benchmark, although in recent years performance has been hit by their decision not to hold one stock which is a major part of the index and has outperformed (as discussed in the Performance section).
Thanks to this underperformance, a tender offer was triggered at the end of September 2019 and 25% of the share capital was repurchased by the trust. However, it will remain the largest India specialist investment trust. Discounts have been volatile in Asia in 2020 thanks to the coronavirus scare. JII’s discount did come in since the tender offer, but has since widened out to 13%.
In our view, JII offers an attractive way to invest in the exciting secular growth trends in India. Although the country’s economy has stumbled over the short term, in the managers’ view this is largely thanks to the effects of reforms which will be extremely positive in the long run, reducing the size of the black economy and bringing more people into the banking system. We think India may be further down the same path as China, with penetration of financial services, digitalisation and consumer growth trends likely to provide huge opportunities to companies and investors over the coming years.
We think the managers’ focus on finding quality companies and taking a long-term view is likely to benefit from these trends. The extensive resources they can bring to bear on carrying out fundamental research are therefore likely to create a major advantage.
It is also worth noting that India is a major overweight in the JPMorgan Emerging Markets Investment Trust and a minor overweight in the JPMorgan Asian Investment Trust, indicating the conviction the EMAP team have in the country’s best companies.
However, in our view investors in India need to take a long-term approach, given the potential volatility in regional markets and the importance of global macroeconomic factors to India (such as the price of oil). There is also potential political volatility in the country. In this light a discount of over 10% could be an interesting entry point.
|India has an exciting potential growth trajectory as it rapidly develops||Highly active approach can lead to periods of underperformance|
|Highly experienced managers are well resourced with a regional analyst team||Portfolio is expensive on a P/E basis, so earnings growth targets must be met|
|ESG issues integrated into stock-selection process||There is no dividend|