JPMorgan Indian 26 October 2022

JPMorgan Indian (JII) seeks to generate capital growth over the long term through a portfolio of Indian companies. JII is managed by Ayaz Ebrahim, co-head of the Asia Pacific Regional team, who draws on the work of a large team of specialist analysts looking at Asian equities which provide context for the Indian market. Ayaz was recently joined by Amit Mehta and Sandip Patodia on the management team following the decision of Rajendra Nair to leave JPMorgan. There will be full continuity of process, however, as this is built on a stable and consistent framework shared across the JPMorgan regional team.

Ayaz and the team believe that high-quality companies which have strong financials and steady earnings’ growth potential are best placed to provide superior returns to shareholders as India develops. The financial sector is the largest weighting in the portfolio, followed by IT and consumer discretionary. These are the sectors that the team see as the principal beneficiaries of India’s development.

JII’s Performance over a five-year period has been disappointing, the NAV total return significantly behind the benchmark. Largely, this is owing to decisions on individual stocks, specifically underweight positions in Reliance Industries and Infosys. Perhaps partly as a result, the Discount has widened out to 22.6% at the time of writing, which compares to a five-year average of 14.1%. Buybacks and a tender offer, first due in 2025, should provide some support to the rating.

JII is the largest India specialist investment trust on the market, and this has contributed to it having the lowest ongoing charges’ figure (OCF) in the AIC India sector of 0.83%.

We believe that India offers strong long-term growth attractions and is set to follow a development path similar to that of China, which should provide attractive opportunities for the long-term investor. Ayaz and the team believe India it to be approximately 15 years behind China. Key to its prospects is a myriad of secular structural drivers including its growing population and labour force that is highly educated, increasingly skilled and cheap. We think the JPMorgan EMAP team have a disciplined and attractive investment process which provides the potential for alpha generation, notwithstanding disappointing recent returns. Given the structured, repeatable process, we expect full continuity of approach after the departure of Rajendra Nair from the management team.

At the time of writing, Indian stocks have recovered well and indices are trading comfortably higher than pre-covid levels. However, Ayaz and the team are wary of valuations in the market, especially since the economic environment has become highly uncertain amidst global central banks raising interest rates to combat inflation. Thus, as they do not feel the need to use gearing, they sit on a small net cash position.

JII is not alone amongst its peer group in trading at a wide discount; we believe that this is due partly to the perception of higher risk associated with a single-country fund, as well as JII’s underperformance. We believe that investors looking for access to aligning with India’s long-term development prospects could find the wide discount an attractive potential booster to returns.