Interactive Investor

Ian Cowie: home to my first 10-bagger trust, this market is just getting started

Our columnist assesses the prospects of his two India investment trusts after an excellent run for the country.

17th August 2023 11:05

by Ian Cowie from interactive investor

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Only one emerging market can boast it is the world’s biggest democracy, with twice as many stock market-listed companies as there are in London, a youthful population and well-defined property rights. All four characteristics are seen as increasingly important for investors now that India is celebrating its 76th anniversary of independence in the same week that Apple iPhone 15 production began for the first time on the subcontinent.

By contrast, China and Russia, with their ageing populations and unpredictable approach to human rights or commercial litigation are seen as increasingly immoral and risky places to do business. From a purely personal point of view, I am jolly glad I sold all my shares in Chinese and Russian investment trusts several years ago.

To be specific, after investing for more than a decade in what became BlackRock Emerging Europe (stock market ticker: BEEP), I sold all my shares at £3.76 in March, 2018, after hearing how Russian spies had poisoned Sergei and Yulia Skripal at Salisbury. Amid mounting condemnation, BEEP was wound up that summer.

Similarly, I had invested in China for more than 20 years before I learned about the mass maltreatment of its Muslim minority, the Uighur, and sold all my shares in Fidelity China Special Situations (LSE:FCSS)  at £2.22 in April, 2020. More than three years later, they trade slightly lower this week at £2.12 amid rising fears about a property crash being dubbed “the Great Fall of China”.

On a brighter note, a leading fund manager claims that “India is one of the best-positioned economies in the world to deliver growing wealth for its growing population over the next two decades”. Nick Train, the manager of Finsbury Growth & Income (LSE:FGT), went on to describe one of its underlying holdings’ Indian exposure as “the jewel in its crown”.

I hope Train is right because India is the home to what was my very first 10-bagger, an investment trust share whose price soared by 10 times or more, and I still hold two investment trusts focused on the subcontinent. In June, 1996, I paid 63p for what was then Fleming Indian but is now JPMorgan Indian (LSE:JII) and trades at £8.32. More recently, in September, 2021, I paid £1.21 for shares in India Capital Growth Ord (LSE:IGC) that cost £1.53 this week. Neither pays any dividend income.

Never mind Train’s long and wide view, still less mine, what do specialist fund managers focused on India have to say? Gaurav Narain is based in Mumbai and manages IGC, which is the top performer in the Association of Investment Companies (AIC) India and Indian Subcontinent sector over the last year and decade, with total returns of 37% and 358% respectively. Its five-year return is 53%.

Narain pointed out: “India’s 1.3 billion population is a massive market for entrepreneurs to develop products and services that satisfy the aspirations of an expanding middle class. It now has more than twice the number of quoted companies as the UK – over 5,000 in India compared to 1,925 in Britain.

“India’s mid-cap sector is particularly vigorous and includes world leaders in their industries such as Welspun – the largest home textile manufacturer in the world; EPL – the world’s largest speciality packaging company for toothpaste tubes and the like; plus CCL Products, the second-largest manufacturer of instant coffee after Nestle SA (SIX:NESN) in the world.”

Ashoka India Equity (LSE:AIE) is the sector leader over five years with a total return of 106%, according to independent statisticians Morningstar, although this fell back to 7.3% over the last year. AIE lacks a 10-year track record because it was launched in July 2018. Its manager Ayush Abhijeet, said: “The United Nations estimates that India will have the most favourable demographic trends among the large economies over the next two decades.

“Perhaps the most understated factor is that India has the soft infrastructure of a mature, stable democracy with a strong separation of powers – between the executive, legislature and judiciary. This makes India an attractive investment destination, especially compared to some of its peers.”

Similarly, Amit Mehta, portfolio manager at JII, said: “Not only is India now the most populous country in the world but its age distribution is also weighted towards economically active age groups.

“We believe India is on the cusp of being able to deliver a high rate of economic growth over multiple decades.”

Against all that, JII’s recent performance has been relatively weak. It achieved total returns of just 3.5% over the last year, 14% over five years and 152% over the decade.

No wonder Train emphasises the importance of individual stock selection, such as its holding in HindustanLever (HUVR), which is the biggest quoted subsidiary of the FTSE 100 household goods giant, Unilever (LSE:ULVR). He pointed out: “The value of ULVR’s holding in this Indian quoted company is over 30% of the whole of the parent’s stock market capitalisation.

“HUVR’s last dividend was up 19% and this seems to confirm that India is one of the best-positioned economies in the world to deliver growing wealth for its growing population over the next two decades. If so, ULVR’s holding in the biggest consumer company in India truly is a jewel in its crown.”

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

Ian Cowie is a shareholder in Apple (AAPL), India Capital Growth (IGC), JPMorgan Indian (JII), Nestlé (NESN) and Unilever (ULVR) as part of a globally diversified portfolio of investment trusts and other shares.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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