JPMorgan Indian 13 July 2023

JPMorgan Indian (LON:JII) is the largest UK-listed investment trust devoted to India and has for many years been in the hands of the Emerging Markets and Asia Pacific (EMAP) Equities Team at JPMorgan. Whilst there has been continuity in the basic strategy, there has been a recent change in the management team responsible for the portfolio. Since September 2022, Amit Mehta and Sandip Patodia have been in charge alongside Ayaz Ebrahim, who was appointed in late 2020. The new managers have been refocussing the portfolio on the quality characteristics they value, with encouraging early signs in Performance.

JII has delivered NAV total returns ahead of the MSCI India benchmark in 2023 as of the time of writing. Not owning the Adani Group of companies is a key reason; these companies were excluded from the portfolio partly as a result of the team’s focus on governance. A short-selling report published in January 2023 brought the Group’s governance into question and the shares haven’t yet recovered from the sell-off following publication of the report. Governance is one of the key contributors to quality the team consider when selecting stocks, alongside the Economics of the business and the Duration of the opportunity (see Portfolio).

JII delivered disappointing performance for some time prior to the arrival of the new managers. This has likely contributed to the shares moving out to a discount of 19.4%. The board has been active in seeking to tackle this and has been conducting a significant buyback programme. There is also a continuation vote scheduled for the 2024 AGM, whilst a tender offer for 25% of the shares will be made in 2025 subject to a performance target not being met (see Discount).

India looks like one of the most exciting growth stories in global markets. It has strong demographics and a good legal and regulatory system for doing business, along with a well-established equity market. But this has all long been true. There are currently a number of factors which are really accelerating domestic growth including a business-friendly, reform-minded government which has made strides in expanding access to banking and the internet and a global political situation which makes India an attractive alternative trade partner to China.

We think JII is an attractive way to invest in the country, as a large and liquid trust managed by a team with deep resources to bring to bear on stock selection. Performance has been disappointing for some time, but the refreshed management team may well be what is needed to turn this around. We note that the EMAP team have had great success in stock-picking in emerging markets and Asia portfolios, and so we believe Amit, Sandip, and Ayaz have the raw materials to generate alpha. A globally more cautious investor base in a higher interest rate world might lead to quality being rewarded more in the near future. It might also lead to more wariness of the risky, indebted, and/or speculative companies which have often been significant detractors of relative performance.

Notably, JII offers access to the Indian growth story at an attractive discount. This discount is well-supported by buybacks, a continuation vote, and a tender offer, all of which may help to prevent the rating from widening further and show the board is keen to see the discount close over the medium term.