Why JPMor­gan In­dian is a hot re­cov­ery prospect

High qual­ity In­dia fund is firmly po­si­tioned for a re­bound

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Awide 15.5% dis­count to net as­set value (NAV) on the JPMor­gan In­dian In­vest­ment Trust (JII) should in­ter­est port­fo­lio builders look­ing for ex­po­sure to one of the globe’s biggest, most ex­cit­ing long-term growth mar­kets.

While per­for­mance in the six months to 31 March dis­ap­pointed, JPMor­gan In­dian’s NAV has in fact out­per­formed the MSCI In­dia In­dex bench­mark in six of the past eight fi­nan­cial years and the port­fo­lio, which out­per­formed the bench­mark in April, looks primed for re­cov­ery.


The largest, most liq­uid London-listed In­dian equity fund, JPMor­gan In­dian is man­aged by sea­soned In­dian eq­ui­ties ex­perts Rukhshad Shroff and Ra­jen­dra Nair, sup­ported by the well-re­sourced JPMor­gan Emerg­ing Mar­kets team.

The pair in­vest in good qual­ity busi­nesses with su­pe­rior growth prospects, hold­ing them for the long term. Stock se­lec­tion is driven by qual­ity first, fol­lowed by val­u­a­tion and the man­agers flat out won’t buy a stock if they dis­trust man­age­ment.

A few years ago, the man­agers be­came more op­ti­mistic on the do­mes­tic econ­omy and tilted the port­fo­lio towards cycli­cals, no­tably banks – top 10 po­si­tions in­clude HDFC Bank, Ko­tak Mahin­dra Bank and In­dusInd Bank – as well as build­ing ma­te­ri­als and au­tos.

For the half year to 31 March, NAV fell by 3.6% com­pared with a 0.5% de­cline in the bench­mark, un­der­per­for­mance largely re­flect­ing the trust’s low weight­ing in in­dex heavy­weights Reliance In­dus­tries and In­fosys.

An over­weight po­si­tion in cement sec­tor play­ers ACC and Am­buja Cement, in Ba­jaj Auto and se­lect mid and small caps de­tracted from per­for­mance, as did gear­ing in a weak mar­ket. Over­weight po­si­tions in Ju­bi­lant Food­works, Shri­ram Trans­port Fi­nance and auto sec­tor play­ers Maruti Suzuki and Ashok Ley­land lent some sup­port.


In­dia’s econ­omy is grow­ing more rapidly in 2018 than it did in 2017, yet the head­wind from high val­u­a­tions means the stock mar­ket hasn’t made progress.

The in­vest­ment man­agers ex­pect the next year to be a pe­riod of in­creased un­cer­tainty and volatil­ity in In­dia, cur­rently in an im­por­tant elec­tion cy­cle. You should there­fore treat this as a high-risk in­vest­ment.

Since Naren­dra Modi came to power the mar­ket has risen sig­nif­i­cantly more than un­der­ly­ing cor­po­rate earn­ings. Eq­ui­ties have rerated thanks to macro re­forms and be­cause in­vestors have ex­pected a re­cov­ery in the pace of eco­nomic growth and cor­po­rate prof­its.

Gear­ing in the fund has been re­duced to pro­vide the flex­i­bil­ity to cap­i­talise on buying op­por­tu­ni­ties ‘should the mar­ket weaken in the face of in­creased un­cer­tainty’.

For in­vestors pre­pared to look past near-term chal­lenges, JPMor­gan In­dian offers a com­pelling play on a mar­ket with ‘great hu­man po­ten­tial and huge scope for im­prov­ing its eco­nomic per­for­mance’, to quote chair­man Richard Burns. (JC)

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