The JPMorgan Indian Investment Trust (JII) investment team recently shared why they believe Indian equities look relatively attractive at current levels for long-term investors, and how they are managing the portfolio as macroeconomic issues fuel stock market volatility.

1. Economic engine

India’s economic growth of around 6%-7%—and the fact that the economy has not had a full-blown recession since 1980 (except during the Covid pandemic)—has supported robust corporate earnings growth. Investors’ enthusiasm for India’s growth prospects has helped drive robust returns for the Indian stock market (MSCI India Index in GBP) over much of the last 20 years.

The recent above-trend economic growth has been supported by front-loaded government investment ahead of elections and is likely heading back towards trend. Nevertheless, the portfolio managers of JII don’t see any major headwinds. Companies in the materials and energy sectors will face the challenge of lower global commodity prices but the economic outlook is still strong enough to support double-digit corporate earnings growth for the MSCI India Index.

2. High-quality advantage

One of the key reasons Indian companies have posted strong economic growth is because, on average, they have meaningfully higher quality characteristics than many other emerging market (EM) companies. Generally higher returns on capital (ROC), combined with strong growth, have translated to attractive shareholder returns. Corporate balance sheets are also currently in good shape; at banks, non-performing loans (NPLs) are well contained and credit growth remains robust.

3. Less exposure to tariffs

India looks relatively well positioned vs. its Asian peers when it comes to tariffs. India exports only 11% of its GDP, which could shield the economy significantly more than many other EM countries—and even some developed market economies. Some Indian companies may, however, feel the negative impact of tariffs more indirectly. For example, many of the country’s large information technology (IT) service companies are correlated to US economic growth. These companies are already beginning to report freezes in discretionary spending and budgets.

The portfolio is overweight the auto sector but much of the end-market exposure is either domestic or in other emerging markets. While JII has a modest overweight to healthcare companies, the industry is considered critical, which may limit the impact of tariffs.

4. Lower valuations

Indian equities rode a bullish wave of strong economic and corporate earnings growth to lofty valuations, in some cases. However, starting in September 2024, concerns about the sustainability of growth as the government reduced spending resulted in some earnings downgrades. Stocks with high valuations—especially small and mid cap stocks—led the market’s decline late in the year.

However, many market participants that missed earlier entry points before valuations skyrocketed have been keen to use market pullbacks to add new positions. JII has also recently added to some positions, especially in small and mid cap stocks, which make up about 25% of the portfolio. One example is Genpact, a business process outsourcing company that helps companies reduce costs.

The portfolio managers note that it takes a long time to get invested in smaller and younger—but rapidly growing—companies. The investment process may often take at least five rounds of meetings that include facility visits, speaking to customers and suppliers and discussions with senior management.

Update on JII

JII is one of the largest Indian equity investment trusts with one of the longest track records. Since the current portfolio management team took over at the end of 2022, JII has produced double-digit returns in calendar years 2023 and 2024. However, performance has lagged the benchmark, largely as lower-quality companies have outperformed higher-quality ones.

The Trust’s board has been active in trying to reduce the NAV discount by buying back shares, which has also offered some liquidity, reduced volatility and provided confidence to shareholders. In addition, the research and investment team has been expanding in India and London, particularly to increase coverage of small and mid cap companies. The portfolio managers remain confident in the long-term potential that India offers and the ability of active managers to capture returns for investors.

The securities above are shown for illustrative purposes only. Their inclusion should not be interpreted as a recommendation to buy or sell.

Past performance is not a reliable indicator of current and future results.

Opinions, estimates, forecasts, projections and statements of financial market trends are based on market conditions at the date of the publication, constitute our judgment and are subject to change without notice. There can be no guarantee they will be met.

Summary Risk Indicator

The risk indicator assumes you keep the product for 5 year(s). The risk of the product may be significantly higher if held for less than the recommended holding period.

Investment Objective:

Aims to provide capital growth from Indian investments by outperforming the MSCI India Index. The Company will invest in a diversified portfolio of quoted Indian companies and companies that earn a material part of their revenues from India. The Company will not invest in other countries of the Indian sub continent including Sri Lanka. The Company has the ability to use borrowing to gear the portfolio to up to 15% of net assets where appropriate.

Risk Profile:

• Exchange rate changes may cause the value of underlying overseas investments to go down as well as up.
• Investments in emerging markets may involve a higher element of risk due to political and economic instability and underdeveloped markets and systems. Shares may also be traded less frequently than those on established markets. This means that there may be difficulty in both buying and selling shares and individual share prices may be subject to short-term price fluctuations.
• External factors may cause an entire asset class to decline in value. Prices and values of all shares or all bonds and income could decline at the same time, or fluctuate in response to the performance of individual companies and general market conditions.
• This Company may utilise gearing (borrowing) which will exaggerate market movements both up and down.
• This Company may also invest in smaller companies which may increase its risk profile.
• The share price may trade at a discount to the Net Asset Value of the Company.
• The single market in which the Company primarily invests, in this case India, may be subject to particular political and economic risks and, as a result, the Company may be more volatile than more broadly diversified companies.