One of our columnist’s most successful investments has been out of form, but its share price was boosted this week. He explains why.
With less than a month to go before the next Budget on Wednesday 3 March, investors can find reasons to be cheerful from this week’s example of how fiscal stimulus may revive a flagging economy and stock market.
You could be forgiven for having missed it, because foreign news is not covered in the way that it used to be, but India, the world’s biggest democracy, received a massive budget boost on Monday (1 February). Finance minister Nirmala Sitharaman pledged to double spending on health, boost infrastructure investment by 35% and privatise a swathe of public bodies, including Air India, in a bid to raise $23 billion (£17 billion) before the end of next year.
The UK chancellor Rishi Sunak, is unlikely to have missed this dramatic development. Sunak’s wife, Akshata Murthy, hails from Bangalore where his billionaire father-in-law Narayana Murthy is dubbed the ‘Steve Jobs of India’ after founding the technology giant Infosys (NYSE:INFY).
Coming down from the clouds, your humble correspondent was happy to see shares in JPMorgan Indian (LSE:JII) jump 9% when the Bombay Stock Exchange (BSE) Sensex index welcomed Sitharaman’s stimulus package. JII is the longest-held holding in my ‘forever fund’ after I invested in what was then called Fleming Indian at 63p each in June, 1996.
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This investment trust was also my first 10-bagger - or share whose price multiplied 10 times - although it took the best part of 20 years to get there. You can’t call me a short-term speculator.
More recent years have been less happy, with high hopes for prime minister Narendra Modi fading after his re-election in 2019 and the coronavirus making a bad situation worse. JII’s share price plunged to 400p last March when the pandemic panic hit fever pitch.
Since then, JII clawed its way slowly upwards before this week’s sudden spurt lifted it to 742p, to trade 13% below net asset value (NAV) with total assets of £653 million. However, its short, medium and long-term performance remains poor with a loss of 0.7% over the last year, positive returns of 49% over the last five years and 74% over the last decade, according to Morningstar.
Most immediately, tens of thousands of farmers protesting against Modi's bid to deregulate India's agricultural commodities market are also souring sentiment. Emotions are running high and counter-protestors burned photographs of the eco-warrior Greta Thunberg and pop star Rihanna this week, after they voiced their opinions. So I will merely say that the sclerotic status quo seems ripe for reform.
Aberdeen New India (LSE:ANII) is JII’s nearest rival by size, with total assets of £375 million and trading nearer a 14% discount to NAV, has done better over all three standard periods for comparison, with total returns of 13%, 77% and 122% respectively.
Among smaller investment trusts focused on the subcontinent, India Capital Growth (LSE:IGC) survived a continuation vote last summer and trades at a discount above 14%, despite delivering 19% returns over the last year. Its five and 10-year returns remain the worst in this group at 46% and 52%.
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Relative newcomer Ashoka India Equity (LSE:AIE), launched in July, 2018, may remain below many wealth managers’ market capitalisation criterion with assets of £97 million. But the smallest Indian fund has also delivered the biggest one-year return of just over 20%.
Less happily, AIE’s shares trade at a premium of 2% above their NAV and the Association of Investment Companies (AIC) data reports ongoing charges, including any performance fees, are an eye-stretching 5.32% per annum. By contrast, IGC’s costs are 1.86%, ANII’s are 1.14% and JII charges 1.01%, according to the AIC.
Apart from a long history and low charges, why bother hanging on to JII? Andrew Rees at the stockbroker Numis Securities summed up the bull case: “India had been experiencing a slowdown in growth during the two years prior to the coronavirus pandemic but we believe the case for growth remains convincing, driven by a domestic economy with substantial potential due to its population of about 1.3 billion people and a growing middle class.
“JPM Indian is trading on a 13.4% discount to NAV, reflecting the period of weak relative performance. We believe it is positive to see the managers seeking to address performance by diversifying the portfolio.”
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Whether Indian investment trusts trading at double-digit discounts represent good value - as opposed to merely being cheap - remains to be seen. By contrast, followers of fashion who pay a premium to NAV must hope that no unforeseen events punish trusts priced for perfection.
Meanwhile, my inner contrarian draws comfort from the fact that most folks’ gaze is firmly fixed elsewhere, to the extent that one reader claimed last week that China is the only Asian market worthy of investment. Well, I can’t always be right, but I can always be different - and that has delivered decent returns over the decades. By contrast, if you follow the herd you might just end up at the abattoir.
Ian Cowie holds shares in JP Morgan Indian (LSE:JII) as part of a globally diversified portfolio of investment trusts and other equities.
Ian Cowie is a freelance contributor and not a direct employee of interactive investor.
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