JPMorgan Indian Investment Trust was the first trust to focus purely on Indian companies providing access to India’s massive long-term growth potential through locally based investment expertise. Find out why the trust’s managers expect India to continue as one of the fastest growing economies.
The Indian economy has one of the strongest growth stories in the world. GDP rose by an average of over 6% a year, in real terms, for the decade prior to the pandemic, and activity rebounded strongly in the immediate post-pandemic period1. The economy grew by 8.7% in 20221, and the World Bank and the OECD forecast growth of 7% in 20231, with the pace of expansion projected to remain around 6.0% in both 2024 and 2025.
And conditions are in place to ensure that rapid growth continues. As incomes rise, consumer spending power will also increase, and households will switch to more expensive, premium brands of day-to-day products. The market penetration of banking and credit services is still very low across the country, but rising incomes, combined with mobile technology, is fuelling demand for banking services, so there is significant scope for financial institutions to broaden their customer bases and product offerings over time.
India’s very favourable growth prospects are further supported by its demographics. The country recently overtook China as the most populous nation in the world, and its young, skilled, low-wage workforce is the envy of the world. For example, the salaries of Indian IT engineers are about one sixth of those in developed markets. Such wage disparity across many sectors is prompting global businesses to move their IT, administration and customer relations functions to India – a process known as offshoring, which is an increasingly valuable source of Indian export income.
India has a relatively low correlation to other major equity markets such as China and the US
India’s political environment is also conducive to continued economic expansion. While Hindu nationalism is a concern for some pundits, no market is without some political risks. Of overriding importance for most investors is the fact that India is a stable democracy, with a pro-business, pro-growth government.
All these factors combine to ensure that India’s large equity market is rich in opportunities and offers investors one of the highest returns on equity (ROE) in the world. The market’s relatively low correlation to other major equity markets such as China and the US is an additional attraction, as this provides investors with significant diversification benefits, included very limited exposure to the geo-political tensions presently clouding Sino/US relations and investor sentiment in these markets.
JPMorgan Indian Investment Trust (JII) aims to provide investors with access to India’s massive long-term growth potential, and the many investment opportunities it is generating. JII was the first UK listed trust to invest purely in Indian companies, and it is the largest UK-listed India trust2. The Company invests in high quality, profitable, well-run businesses with superior growth prospects that compound over periods of five years or more. While quality is the first investment criteria, valuations are also key, and JII’s strategy is underpinned by a disciplined valuation framework.
A new management team assumed responsibility for JII’s portfolio in the final quarter of 2022, but the Company’s investment strategy remains unchanged, with management continuity assured by the ongoing presence of Ayaz Ebrahim. The new team is also supported by a dedicated, experienced team of more than 10 emerging market analysts, based globally as well as on the ground in Mumbai.
Key drivers of India’s economic growth & development
Under the new managers, JII’s portfolio has retained exposure to the key drivers of Indian economic growth – rising domestic demand for consumer products and financial services and the international appetite for India’s offshoring capabilities. Consistent with the consumer theme, the portfolio has a significant overweight to consumer staples, including a recently acquired exposure to United Spirits, the largest player in the Indian alcoholic beverages market, which is now focussing on the premium-plus sector of the market. The managers have also opened a position in Colgate, the market leader in oral care, which benefits from a strong brand and good distribution. Other consumer staples holdings include Hindustan Unilever, which produces a wide variety of household and personal care products, and Britannia, a supplier of packaged food products.
JII also has a significant structural overweight to financials, intended to capitalise on the expansion of this sector. It holds HDFC Bank and Axis Bank, and HDFC Standard Life Insurance, and has recently added HDFC Asset Management, India’s second largest listed asset manager. The team believe that this business is primed for long term growth as financial sophistication and incomes rise and savings shift from physical to financial assets.
It is of course, very early days for JII’s new management team, but in the five months to end May 2023, JII outperformed its benchmark by 3.4 percentage points, returning 0.8%, compared to the benchmark decline of -2.6%. This outperformance was driven largely by a longstanding decision not to own any of the Adani Group companies, whose share prices have suffered from concerns about stock price manipulation, other poor governance practices, and high leverage. An overweight to ITC Limited, a supplier of tobacco products and other consumer goods, with additional interests in hotels, also supported returns over this period.
However, whatever the JII’s near-term performance, JII managers intend to maintain their focus on the long term. They are very positive on the outlook for the Indian economy, and its equity market, and equally confident of the Company’s ability to capitalise on the many exciting investment opportunities and high returns on offer in this market over the remainder of this decade and well beyond.
1 World Bank, OECD Data as of Dec 2022
2 Association of Investment Companies, India/ Indian Subcontinent