Interactive Investor

Ian Cowie: my first 10-bagger is offering an eye-catching discount

21st April 2022 09:52

Ian Cowie from interactive investor

Our columnist explains why he is finding plenty of value in a stock market region that’s seen a recent upturn in performance. 

What have the chief executive officers (CEOs) of Alphabet (NASDAQ:GOOGL), Microsoft (NASDAQ:MSFT) and Twitter (NYSE:TWTR) got in common? Another clue: they share this link with the CEO of International Business Machines (LSE:IBM) and an estimated one third of the digital engineers in Silicon Valley.

Yes, that’s right, they are all from India. The individual success of, respectively, Sundar Pichai, Satya Nadella, Parag Agrawal and Arvin Krishna personifies one of the main reasons adventurous investors should consider some exposure to India. Many of its citizens have world-leading skills in all things digital from artificial intelligence, bitcoin and the Cloud to Zcash.

So Boris Johnson’s visit to India this week might prove important for investors. He planned to sign a new trade deal in Gujarat on Thursday (21 April), before discussing defence with Narendra Modi, the Indian prime minister, in New Delhi on Friday (22 April).

Never mind the geopolitics, shareholders in investment trusts focused on India have been enjoying decent gains recently. These follow difficult years, when this emerging market was overshadowed by its larger rival - China.

For example, the average fund in the Association of Investment Companies (AIC) ‘India’ sector delivered total returns of 138% over the last decade before hitting a flat patch of underperformance with 17% over the last five years, followed by 13% over the last year. That compares with the AIC average for ‘China/Greater China’ of 165%, 36% and minus 38% over the same three periods.

Despite dramatic outperformance over the last year, the average India investment trust continues to trade at a 14% discount to its net asset value (NAV). Apart from the usual worries about emerging markets - such as corporate governance and regulatory standards that differ from our own - part of the explanation for India investment trusts’ low valuations is that none of them pays any dividends.

As discussed here before, rising inflation and interest rates around the world have made ‘jam tomorrow’ shares that pay low or no income less popular than they used to be. But capital growth can provide more than adequate compensation, as shareholders in Ashoka India Equity (LSE:AIE) know, after enjoying sector-beating gains of 35% over the last year, according to independent statisticians Morningstar.

This £207 million trust trades at a modest 2.4% premium to net asset value (NAV) and was launched in July 2018, so lacks five or 10-year stats. Its top holdings include Laxmi Organic Industries, which produces plant-based speciality chemicals; Infosys (NYSE:INFY), the technology giant co-founded by Narayana Murthy, father-in-law of our chancellor Rishi Sunak; and Nestle India, a local subsidiary of the largest food company in the world.

Standing second over one year, India Capital Growth (LSE:IGC) trades at an appealing 13% discount to NAV. It delivered total returns of 21% over the last year, marginally ahead of its return over five years and 206% over the last decade. IGC has total assets of £120 million and focuses on medium-sized and smaller companies, whose names are unfamiliar to me, although I have been an investor since September last year.

Third-ranked is JPMorgan Indian (LSE:JII), in which I have been a shareholder for more than a quarter of a century, where total returns were 11%, 10% and 119% over the three standard periods mentioned earlier. It trades at an eye-catching 18% discount to NAV. It has total assets of £723 million and focuses on bigger companies, led by Infosys, and including Tata Consultancy, as well as Hindustan Unilever, another local arm of a global giant.

While JPMorgan Indian has lagged behind India Capital Growth for a decade and Ashoka India Equity has left both in the dust recency, I must admit a sentimental attachment to JPMorgan Indian. It was my first 10-bagger, after I bought shares in what was then called Fleming Indian for 63p in June 1996, that began to trade over £6 six years ago and changed hands at £7.34 this week.

Looking forward, India seems well-placed to benefit from the growing importance of information technology in the global economy. Working from home could accelerate that trend - although British employers might be keener than their employees, if remote working is done from a flat in Calcutta instead of a cottage in the Cotswolds.

Whatever happens to Johnson’s plans for a trade trip this week, investors willing to accept high risks in pursuit of high returns should consider some exposure to India.

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

Ian Cowie is a shareholder in India Capital Growth (IGC), JPMorgan Indian (JII), Nestle (NESN) and Unilever (ULVR) as part of a globally diversified portfolio of investment companies 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.