Ian Cowie: follow the BAHJI trade for income and growth

Everyone has heard of the TACO trade, based on City cynics’ observation that Trump Always Chickens Out. Now let me tell you about the lesser-known BAHJI trade, based on my belief that it’s always best to Buy And Hold Joyful India.

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Yes, this long-term investor is biased, because the world’s biggest democracy and fifth-largest economy is home to my very first 10-bagger, an investment trust whose share price went up 10 times after I bought some 30 years ago. But recent news, which might have been given more coverage in less extraordinary times, provides better reasons to consider India now.

Earlier this month, US President Donald Trump announced that he would cut tariffs on imports from India to less than half the punitive level he imposed last year; cutting these taxes from 50% to 18%. He explained his latest about-turn was intended to reward the Indian prime minister, Narendra Modi, for promising to stop buying oil from Russia.

Last month, European Commission President Ursula von der Leyen and Modi said that the EU and India had agreed to scrap €4 billion (£3.5 billion) of tariffs on trade between them. She added: “We did it. We delivered the mother of all trade deals.” Meanwhile, Modi hailed “a new era”.

Never mind the political hyperbole, less tax should mean more trade, which would be good for India where the cost of everything from labour to land is a fraction of the going rates in America and Europe. Better still, many Indian shares remain a long way below all-time highs, unlike most American and European rivals.

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The first step towards making a profit is often to buy low, so this might be a good time to consider some exposure.

For example, the average fund in the Association of Investment Companies (AIC) India/Indian Subcontinent sector shot the lights out over 10 years with a total return of 134%, followed by a respectable 42% over five years, before a disappointing loss of 4.2% over the last year.

An extreme example of how shares in the subcontinent have fallen from favour can be seen in the medium-sized and smaller companies specialist India Capital Growth Ord (LSE:IGC). This £120 million fund is the sector leader over the long and medium term, with total returns of 181% over 10 years and 77% over five, followed by a one-year loss of 5.8%.

Sad to say, steep ongoing charges of 1.58% per annum do nothing to ease the short-term pain. As is the case with three of the four funds in this sector, there are no dividends either, but the shares are priced 9.4% below net asset value (NAV), which might tempt bargain hunters.

At the other end of the market capitalisation scale, JPMorgan India Growth & Income plc (LSE:JIGI), with total assets of £467 million, focuses on large, blue-chip businesses to produce total returns of 121% over 10 years, 35% over five and modest shrinkage of 0.7% over one. It is a sign of how low India has sunk recently that the latter loss is enough to leave JIGI as sector leader over the last year.

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On a brighter note, its recent policy of distributing dividends enhanced from capital reserves, aiming to pay 4% of NAV the previous September, means JIGI currently yields 4.5% in dividend income, since share price slippage since last year pushed up the running yield. Charges are low, at 0.77% per annum, and the shares trade on a 6.3% discount to NAV.

The other funds in this sector are abrdn New India Investment Trust Ord (LSE:ANII) and Ashoka India Equity Investment Ord (LSE:AIE).

ANII delivered total returns of 161% over 10 years, 35% over five years and a 2.3% loss over one year, and is priced 8.4% below NAV. The equivalent numbers for AIE, which was launched in 2018 so lacks a decade-long performance, are 78% (five-year return) and a 7.6% loss (one-year) with a modest 1.5% discount.

Full disclosure, JIGI will always be close to my wallet because it became my very first 10-bagger more than a decade ago.

Like lovers, investors never forget the very first time and I still remember buying what was then called Fleming Indian, paying 63p in June, 1996, and putting in a low four-figure sum, for stock that trades at 974p ex-dividend as I write this.

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If memory serves, India wasn’t a fashionable emerging market back then, either. But a few business trips to the Far East had impressed me with Asian dynamism and - having been shocked by factory conditions in China - the youthful me was keen to back the world’s largest democracy rather than its biggest dictatorship.

That remains my view and I am still surprised by how many people seem happy to invest in the latter, passive-aggressive super-power.

But I would rather put my money on Modi and hopes that new technology can transform India’s economy. Now that JIGI is adding income to hopes of capital growth, with the next dividend payment due on 2 March, I’m buying the BAHJI trade.

Ian Cowie is a freelance contributor and not a direct employee of interactive investor.

Ian Cowie is a shareholder in India Capital Growth (IGC) and JPMorgan Indian Growth and Income (JIGI) as part of a diversified global portfolio of investment trusts and other shares.