JPMorgan Indian 21 December 2021
Disclaimer
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 (JII) offers access to the growth potential in India via a portfolio of companies selected on an entirely bottom-up basis for their ability to grow their earnings faster than the market. Companies are chosen based on the analysis of a team of analysts focussed on the Asia Pacific region, who use a repeatable framework placing companies in the context of their regional peers and international competitors.
JII is managed by Rajendra Nair and Ayaz Ebrahim, who build a portfolio from the recommendations of the analyst team. Their focus is on long-term growth potential rather than short-term prospects, although current valuations are an important input insofar as they impact on future returns. However, over the long run the team believe that earnings will be the most important driver of shareholder returns.
In the case of India, its current pace of development means there should be plenty of exciting stock-specific opportunities. JII has a significant position in the financial sector, owning banks and other companies which benefit from the growing demand for sophisticated financial products, and which benefit from economic growth as well. This is balanced with significant positions in the technology sector, with the managers looking for opportunities to get into markets which are at an earlier stage of development than markets elsewhere – the purchase of food delivery company Zomato at IPO being an example from 2021.
JII’s performance has been disappointing over the past five years, largely for the reasons we discuss under Performance. However, over the past 12 months performance has improved. Nevertheless, the shares are on a wide Discount of 17% at the time of writing.
India is an exciting place to invest for the long term, with its young and highly educated workforce, strong rule of law and well-developed public equity markets. Recent years have seen business-friendly reforms, growing international interest in diverting business from China and a growing IPO market develop. This has seen the equity market do very well in 2021, and valuations are arguably high in some segments. However, we think India is still highly attractive for those with a long-term time horizon. JII’s discount of 17% at the time of writing offers a cheaper way in.
Long-term performance versus the index has been disappointing for shareholders – even if they have benefitted from being invested in India rather than in a broad emerging markets fund over the past five years. Raj and Ayaz are addressing this with a focus on limiting single-stock risk. This is clearly a tough task for managers in a highly concentrated market like India, where almost half the MSCI India is in ten companies. In our view the quality growth style the team employ could prove to be the right strategy for the post-pandemic world where countries will be tackling high inflation, rising debt costs and the after-effects of the pandemic after government support schemes have rolled off.
bull | bear |
Stock-specific approach should be less dependent on market timing for success |
In recent years performance versus the benchmark has been disappointing |
Offers access to the Indian growth story on a significant discount (as at December 2021) |
Focussed on large-cap market, which could lag in certain environments |
On an ongoing charges basis is the cheapest trust in the sector |
High exposure to financials brings cyclicality and sensitivity to falling markets |