India is an alluring prospect for growth-focused investors these days. With its economy growing at over 7% in 2022/23 according to the World Bank¹ – the second highest rate of all the G20 nations and almost twice the average for emerging markets more broadly – it’s not hard to see why.

Nor is this a flash in the pan: as Amit Mehta, portfolio manager for JPMorgan Indian Investment Trust plc (JII), points out, taking a top-down, macroeconomic perspective, India has seen real economic growth ranging between 6% and 8% every year for the past decade except during the pandemic.

“In our view there’s no other market in the world that can compare in terms of real GDP growth,” he adds. “It’s a compelling growth opportunity, and we expect it to be able to continue to deliver around 6% a year in the next decade too.”

That prediction is underpinned by growing evidence that India is on the cusp of a new investment cycle, with a big pick-up in capital investment and government projects such as railways and ports over the past six months. 

Less geopolitical risk than many emerging markets

It’s particularly attractive as a relatively defensive emerging market, with less geopolitical risk attached than is the case for many other areas. Moreover, growth is deeply rooted in increasing domestic participation, so India’s fortunes are much less dependent than other developing economies (Brazil, for example) on global buoyancy.

Those attractions are reflected in its growing presence within the emerging market benchmark index. “Around five years ago, India used to account for 8% of the MSCI EM index; now it’s 16%,” says Mehta.

So the long-term macro backdrop is undoubtedly one to turn investors’ heads. Against that, however, traditional valuation metrics such as the price to book ratio suggest that India has become more expensive over the past couple of years than it was in the past.

That’s an overly simplistic perspective, Mehta believes. With its impressive growth opportunities, “there’s a strong rationale for believing India’s valuation premiums are justified, though not across the board.”

Unusually, smaller companies are significantly more expensive than larger caps in the Indian market, driven by domestic retail interest. As a consequence, despite a wealth of interesting investment ideas available at the smaller end of the spectrum, Mehta and his team are currently pretty cautious in that area: “We’ll take advantage of volatility or a market reversal to get exposure there,” he says. 

High-conviction investment mandate

Against this positive economic backdrop, JII’s mission is a simple one: to invest in high-quality businesses that can compound earnings consistently over the very long term.

“We don’t spend a lot of time thinking about the macro environment or political outcomes,” Mehta explains; “we’re looking for businesses that can thrive regardless of whether they’re enjoying economic tailwinds, though of course it’s even better when there are tailwinds blowing.”

In practice what does that look like? The team has a high-conviction, ’go-anywhere’ mandate and aims for a broad sectoral spread, although in practice some areas offer much more opportunity than others.

Thus, overweights include consumer staples, IT and especially financials, which account for a third of the portfolio and where Mehta is excited by the current low but rising penetration of financial services within the broad population. Financial holdings range from major banks such as HDFC Bank and ICICI – both hold top three positions in the portfolio – to a new acquisition, vehicle financing business Cholamandalam.

The portfolio is underweight in more cyclical sectors such as utilities and energy, but real estate is the only area to which there is no direct exposure (on account of its capital intensive and heavily cyclical nature). And even there, holdings in businesses such as UltraTech Cement offer an alternative play on the property market, as well as on the upturn in the capital expenditure cycle.

JII’s ‘quality growth’ focus means it has underperformed the benchmark MSCI India index in 2023 in part because lower-quality parts of the market such as commodities, mining and real estate have gained favour with investors. But Mehta is comfortable sticking to his guns: “We don’t think these areas will generate long-term returns, so we’re not switching into them.”

At the same time, specific stocks have done extremely well for the portfolio, including top contributors Colgate India and Supreme Industries, a plastic pipe manufacturer, which again provides indirect exposure to the fortunes of India’s real estate market. “It’s starting to see a significant pick-up in volumes and pricing,” he adds.

Overall, the team has made recent changes to try and enhance the portfolio’s quality, aiming for a relatively high return on equity and faster growth than the index, at a relatively small premium. In the context of India’s huge growth potential, that’s an exciting prospect.

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.

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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.
• Where permitted, a Company may invest in other investment funds that utilise gearing (borrowing) which will exaggerate market movements both up and down.
• 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.

This is a marketing communication and as such the views contained herein do not form part of an offer, nor are they to be taken as advice or a recommendation, to buy or sell any investment or interest thereto. Reliance upon information in this material is at the sole discretion of the reader. Any research in this document has been obtained and may have been acted upon by J.P. Morgan Asset Management for its own purpose. The results of such research are being made available as additional information and do not necessarily reflect the views of J.P. Morgan Asset Management. Any forecasts, figures, opinions, statements of financial market trends or investment techniques and strategies expressed are unless otherwise stated, J.P. Morgan Asset Management’s own at the date of this document. They are considered to be reliable at the time of writing, may not necessarily be all inclusive and are not guaranteed as to accuracy. They may be subject to change without reference or notification to you. It should be noted that the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Changes in exchange rates may have an adverse effect on the value, price or income of the products or underlying overseas investments. Past performance and yield are not reliable indicators of current and future results. There is no guarantee that any forecast made will come to pass. Furthermore, whilst it is the intention to achieve the investment objective of the investment products, there can be no assurance that those objectives will be met. J.P. Morgan Asset Management is the brand name for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. To the extent permitted by applicable law, we may record telephone calls and monitor electronic communications to comply with our legal and regulatory obligations and internal policies. Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our EMEA Privacy Policy www.jpmorgan.com/emea-privacy-policy. Investment is subject to documentation. 

The Annual Reports and Financial Statements, AIFMD art. 23 Investor Disclosure Document and PRIIPs Key Information Document can be obtained in English from JPMorgan Funds Limited or at www.jpmam.co.uk/investmenttrust. This communication is issued by JPMorgan Asset Management (UK) Limited, which is authorised and regulated in the UK by the Financial Conduct Authority. Registered in England No: 01161446. Registered address: 25 Bank Street, Canary Wharf, London E14 5JP.

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