Time to take a chance on India?

Out of all the Emerging Markets, India must surely be one of the most promising, with a domestic economy fuelled by a population of 1.3 billion that is just waiting to take off. Sentiment towards the stock market has been undermined by the uncertainty surrounding the forthcoming election, but even if Prime Minister Modi isn’t re-elected the reforms he has put in place should continue to benefit local businesses.

Experienced investors who want to take advantage of the current share price weakness might want to consider JPMorgan Indian (LON:JII), which is the largest and most liquid investment trust that provides exposure to the country. The broker Numis believes that the current discount to NAV of 12% offers real value.

Positive, long-term impact

Narendra Modi was elected in May 2014 in a landslide victory, but the outcome this time round is less certain, with his BJP party struggling in the state elections. Modi promised to deliver meaningful economic reforms and there have been major changes under his leadership including demonetisation, the Goods & Services Tax, and the Insolvency & Bankruptcy Code. These should have a positive, long-term impact on local companies, although the share prices are bound to be volatile ahead of the voting in April and May.

JPMorgan Indian has a high conviction portfolio of 42 quality businesses that are held for the long term. Its two experienced managers have positioned the fund for a recovery in domestic earnings, most notably in the Financial Services and Consumer Cyclical sectors. These are cyclically depressed and are expected to pick up following improvements in the health of the banking sector.

Their key overweight positions include the private sector banks, HDFC, Indusind, and Kotak Mahindra; cement companies Ultratech, Ambuja, ACC and Shree; as well as the auto manufacturers Maruti Suzuki, Bajaj Auto and Hero MotoCorp. The main underweights are in IT Services and Energy, both of which are highly sensitive to the health of the global economy.

High conviction portfolio

Rukhshad Shroff and Rajendra Nair, the managers, look for quality growth stocks and have a bottom-up stock selection process that is driven by quality first and then valuation. They are comfortable taking strong views and run a high conviction portfolio with the ten largest positions accounting for 60% of the assets.

The Indian stock market looks more expensive than its Emerging Market peers and historically that has often been the case. It is possible in this instance that the valuation could be misleading as the earnings are cyclically depressed. The problems have been evidenced by rising non-performing loans in the banking sector, but there are signs that the situation may be improving and that the bad debts might have peaked.


A single country fund like JPMorgan Indian will always be more volatile than a diversified regional alternative, but it also offers more upside potential, especially if you are prepared to take the risk of buying ahead of a major event like an election. This is certainly not for the faint-hearted, but experienced investors who are willing to accept the high level of risk could find that the volatility ahead of the voting in April and May works to their advantage.