jpmorgan indian investment trust plc · 1 investment objective and risk profile jpmorgan indian...

JPMorgan Indian Investment Trust plc

January 2020

1

Investment objective and risk profile

JPMorgan Indian Investment Trust plc

Risk profile

The value of investments and the income from them can go down and up, and you may not get back as much as you paid in. Past performance is not a

guide to the future.

Exchange rate changes may cause the value of underlying overseas investments to go down as well as up.

Investments in emerging markets may involve a higher element of risk due to political and economic instability and underdeveloped markets and

systems. Shares may also be traded less frequently than those on established markets. This means that there may be difficulty in both buying and

selling shares and individual share prices may be subject to short-term price fluctuations.

External factors may cause an entire asset class to decline in value. Prices and values of all shares or all bonds could decline at the same time.

This trust may utlilise gearing (borrowing) which will exaggerate market movements both up and down.

This trust may also invest in smaller companies which may increase its risk profile.

Investment objective

The Company’s investment objective is to provide capital growth from Indian investments by outperforming the MSCI India Index.

The company will invest in a diversified portfolio of quoted Indian companies and companies that earn a material part of their

revenues from India. The company will not invest in other countries of the Indian sub continent including Sri Lanka. The company has

the ability to use borrowing to gear the portfolio to up to 15% of net assets where appropriate.

Please refer to the Investor Disclosure Document, latest annual report, and Key Information Document (KID) for more information relating to the Company

2

Performance and Positioning

3

Market value

JPMorgan Indian Investment Trust plc (Diluted) GBP 831.0m^

Performance

JPMorgan Indian Investment Trust plc as of 31st December 2019

Annualised performance (%)

Calendar year performance (%)

Three

months

Six

MonthsYTD

One

year

Three

years

Five

years

Ten

years

Since

Inception#

JPMorgan Indian Investment Trust plc -4.02 -7.03 -0.70 -0.70 5.88 7.18 7.04 8.71

MSCI India Index (NDR)* -2.05 -4.04 3.42 3.42 8.87 8.55 5.93 6.96

Excess return (Geometric) -2.02 -3.12 -3.99 -3.99 -2.75 -1.26 1.04 1.64

2013 2014 2015 2016 2017 2018 2019

JPMorgan Indian Investment Trust plc -6.43 43.71 3.59 15.01 29.87 -7.95 -0.70

MSCI India Index (NDR)* -5.62 31.57 -0.69 17.57 26.74 -1.54 3.42

Excess return (Geometric) -0.86 9.22 4.31 -2.18 2.46 -6.51 -3.99

^JPM shadow valuation, # Inception: 1 July 1994 * Prior to 1 Oct 2003, BSE100 index

Source: J.P. Morgan Asset Management, MSCI, Thomson Reuters Datastream. Net asset value performance data has been calculated on a NAV to NAV (using the cum income NAV with debt at fair)

basis, including ongoing charges and any applicable fees, with any income reinvested, in GBP.

Past performance is not a reliable indicator of current and future results

4

Top 10 contributors/detractors to active returns

Top 10 contributors Country Sector

Weight difference

%

Stock return

%

Impact

%

Kotak Mahindra Bank Limited India Financials 4.75 25.88 0.91

HDFC Bank Limited India Financials 9.49 13.74 0.91

Mahindra & Mahindra Ltd. India Consumer Discretionary -1.36 -36.94 0.74

Yes Bank Limited India Financials -0.66 -65.90 0.66

Multi Commodity Exchange of India Limited India Financials 1.33 52.60 0.55

Indiabulls Housing Finance Ltd. India Financials -0.45 -68.20 0.51

Jubilant Foodworks Limited India Consumer Discretionary 2.12 24.52 0.40

GAIL (India) Limited India Utilities -0.70 -35.14 0.33

Zee Entertainment Enterprises Limited India Communication Services -0.57 -41.75 0.32

Vodafone Idea Ltd India Communication Services -0.18 -71.98 0.30

JPMorgan Indian Investment Trust plc CY2019

Top 10 detractors Country Sector

Weight difference

%

Stock return

%

Impact

%

Reliance Industries Limited India Energy -11.19 27.67 -2.43

ITC Limited India Consumer Staples 2.76 -19.02 -0.84

Mahindra & Mahindra Financial Services Ltd. India Financials 1.62 -34.83 -0.80

Bharti Airtel Ltd. India Communication Services -1.86 49.01 -0.75

IndusInd Bank Ltd. India Financials 4.46 -10.83 -0.70

Bharat Heavy Electricals Limited India Industrials 1.35 -40.48 -0.69

Bajaj Finance Limited India Financials -1.73 50.80 -0.65

Ashok Leyland Limited India Industrials 1.75 -22.26 -0.63

EIH Limited India Consumer Discretionary 1.19 -31.87 -0.48

Larsen & Toubro Ltd. India Industrials 2.91 -14.18 -0.44

Benchmark MSCI India

1 Source: J.P. Morgan Asset Management, MSCI, FactSet, gross of fees in GBP.

Data for Total Attribution shown (stock selection plus sector allocation). Attribution may not match official returns due to differences in systems, rounding. Past performance is not an indication

of current and future performance. The portfolio is actively managed. Holdings, sector weights, allocations and leverage, as applicable are subject to change at the discretion of the Investment

Manager without notice. The companies above are shown for illustrative purposes only. Their inclusion should not be interpreted as a recommendation to buy or sell.

5

Portfolio positions

JPMorgan Indian Investment Trust plc as of 31st December 2019 Benchmark MSCI India

Top 10 holdingsFund

weight (%)

Housing Development Finance Corporation Limited 10.3

HDFC Bank Limited 9.9

Tata Consultancy Services Limited 9.5

Axis Bank Limited 6.5

Maruti Suzuki India Limited 6.2

ITC Limited 5.4

Kotak Mahindra Bank Limited 4.9

Larsen & Toubro Ltd. 4.4

UltraTech Cement Limited 4.2

IndusInd Bank Ltd. 4.1

Source: J.P. Morgan Asset Management.

The companies/securities above are shown for illustrative purposes only. Their inclusion should not be interpreted as a recommendation to buy or sell.

The holdings represent the current holdings of the fund. However, it cannot be assumed that these types of investments will be available to or will be selected by the fund in the future.

Top 5 overweights

Fund

weight (%)

Relative

position (%)

HDFC Bank Limited 9.9 9.9

Kotak Mahindra Bank Limited 4.9 4.9

Tata Consultancy Services Limited 9.5 4.4

Maruti Suzuki India Limited 6.2 4.2

IndusInd Bank Ltd. 4.1 4.1

Top 5 underweights

Fund

weight (%)

Relative

position (%)

Reliance Industries Limited 0.0 -11.3

ICICI Bank Limited 2.6 -4.1

Infosys Limited 3.1 -3.4

Hindustan Unilever Limited 0.0 -3.3

Bharti Airtel Ltd. 0.0 -2.4

6

India Market Outlook

7

Key Issues

Slower Growth = fewer opportunities

Quality earnings with optionality

Valuations: relying on stock fundamentals

Idiosyncratic opportunities

Staying disciplined and true to process

Opinions, estimates, forecasts, projections and statements of financial market trends are based on market conditions at the date of the publication, constitute our judgment and are subject to change

without notice. There can be no guarantee they will be met.

8

Growth slump – the key challenge

Source: MOSPI, CMIE, CLSA, latest data available as of January 2020

Real Gross Domestic Product (GDP) in India

3

4

5

6

7

8

9

10

11

Jun

12

Se

p12

Dec12

Ma

r13

Jun

13

Se

p13

Dec13

Ma

r14

Jun

14

Se

p14

Dec14

Ma

r15

Jun

15

Se

p15

Dec15

Ma

r16

Jun

16

Se

p16

Dec16

Ma

r17

Jun

17

Se

p17

Dec17

Ma

r18

Jun

18

Se

p18

Dec18

Ma

r19

Jun

19

Se

p19

GDP (Real)(% YoY)

9

Pockets of opportunity

Source: Company, MOSL Research, latest data as of Jan 2020

PAT = Profit after Tax, RoE = Return on Equity

60

31

7

60

8

1,0

26

1,2

16

1,6

20

2,0

97

2,6

15

4,3

05

6,0

48

7,2

62

7,4

11

8,2

33

6,7

65

8,0

18

11

,21

3

13

,90

8

3.7

19

.4

35

.5

50

.1

43

.4

42

.4

42

.5

41

.0

49

.2

48

.9

42

.5

33

.0

28

.0

19

.7

20

.6 24

.0

24

.9

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

201

9

Adj. PAT RoE (%)

-6

20

56

77

73

33

4

72

0

1,0

73

1,3

11

1,1

82

84

0

96

8

69

9

1,9

62

3,1

80

-86

.3

71

.7

67

.5

48

.0

30

.5

28

.5

37

.6

36

.2

30

.5

21

.5

13

.0

12

.7

8.7 2

0.3

25

.2

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

201

9

Adjusted PAT RoE

Titan PAT and ROE Jubilant PAT and ROE

Source: Company, MOSL Research, latest data as of Jan 2020

PAT = Profit after Tax, RoE = Return on Equity

The securities above are shown for illustrative purposes only. Their inclusion should not be interpreted as a recommendation to buy or sell

10

Credit: contributing to the slowdown

Total Domestic Credit Growth Loan Growth of Non Banking Financial Companies (NBFCs)

27

22

20

28

8 6

-

5

10

15

20

25

30

FY15 FY16 FY17 FY18 FY19 Jun-19

Loan growth of NBFCs ex top-rated/PSUs(% YoY)

Source: Company Data, RBI, NHB, Morgan Stanley.

Opinions, estimates, forecasts, projections and statements of financial market trends are based

on market conditions at the date of the publication, constitute our judgment and are subject to

change without notice. There can be no guarantee they will be met.

Source: CLSA, Company data, latest data available as of January 2020

NBFCs included: DHFL, IBHFL, Reliance Cap, Can Fin, Piramal, Edelweiss,IIFL, JM, Shriram

Transport, MMFS, Chola, Muthoot, Shriram City, Magma Fincorp, Manappuram

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

FY

12

FY

13

F14

F15

F1

6

F17

F18

F19

e

Q2F

20

e

Total Domestic Credit Growth (%)

11

Opportunities: strong getting stronger

Source: Companies, MOSL Research, latest data available as of January 2020

PAT = Profit after Tax, ROE = Return on Equity

HDFC Bank Bajaj Finance

7 9 11 16 22 29 39 52 67 85 102 123 145 175 211

FY05 FY07 FY09 FY11 FY13 FY15 FY17 FY19

PAT (INRb)

ROE (%)

-

5.0

10.0

15.0

20.0

25.0

30.0

-

200

400

600

800

1,000

1,200

1,400

2011 2012 2013 2014 2015 2016 2017 2018 2019

AUM (Rs bn) RoE (%) (RHS)

Source: Companies, MOSL Research, latest data available as of January 2020. AUM = Assets

under Management, ROE = Return on Equity


12

Asset quality improving

Source: CLSA, Company data, latest data available as of Jan 2020

Banks included: Axis, BOB, BOI, Canara, Corporation, HDFC Bank, ICICI Bank, OBC, PNB, SBI, Union, Yes Bank, IndusInd Bank, Kotak Bank.



Credit costs

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

FY

03

FY

04

FY

05

FY

06

FY

07

FY

08

FY

09

FY

10

FY

11

FY

12

FY

13

FY

14

FY

15

FY

16

FY

17

FY

18

FY

19

FY

20C

L

FY

21C

L

FY

22C

L

Credit costs(% of Avg loans)

13

Axis Bank: An example of opportunity

Source: Company, MOSL Research, latest data available as of January 2020

PAT = Profit after Tax




Axis Bank

25 34

42

52

62

74

82

37 3 47

51

127

1.5%0.8%

0.6% 0.7% 0.7% 0.7%

1.2%

3.1%

4.1%

2.2%

2.4%

1.7%

FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21

PAT (INRb) Credit Cost (%)

14

Source: Motilal Oswal Securities Ltd. Estimates as of 7th January 2020. CAGR = Cumulative Annual Growth Rate




Earnings remain cyclically depressed – nearly flat for 5 years

BSE Sensex Earnings Per Share (EPS)

81 129 181250 266 291 278 280

216 236 272361

446540

720

833 820 834

10241109

1179

1333 1358 1340

1356

1373

1488 1723

2236

FY

93

FY

94

FY

95

FY

96

FY

97

FY

98

FY

99

FY

00

FY

01

FY

02

FY

03

FY

04

FY

05

FY

06

FY

07

FY

08

FY

09

FY

10

FY

11

FY

12

FY

13

FY

14

FY

15

FY

16

FY

17

FY

18

FY

19

FY

20E

FY

21E

FY93-96: 45%

CAGR

FY96-03: 1% CAGR

FY03-08: 25%

CAGR

FY08-18:

5% CAGR

FY18-20: 12% CAGR

15

Polarisation

Source: Datastream, UBS, J.P. Morgan Asset Management, Bloomberg, latest data available as of January 2020. The securities above are shown for illustrative purposes only. Their inclusion should

not be interpreted as a recommendation to buy or sell

In stock performance…

90

100

110

120

130

140

150

160

170

Dec-1

7

Ma

r-1

8

Jun

-18

Se

p-1

8

Dec-1

8

Ma

r-1

9

Jun

-19

Se

p-1

9

Dec-1

9

(rebased to 100)

Top 10 Stocks Rest 40 stocks

… and valuations

Bharat Heavy Electricals vs.

ABB India

11x vs. 46x

(FY 21 PE)

ITC vs.

Hindustan Unilver

17x vs 52x

(FY21 PE)

LIC Housing Finance vs.

Bajaj Finance

1.5x vs 12x

(12 months

trailing book

value)

Shoppers Stop vs.

DMart

1.1x vs 6x

(12 month trailing

sales)

State Bank of India vs.

HDFC Bank

1.1x vs 4.4x

(12 months

trailing book

value)


16

Cognitive dissonance

Source: Companies, MOSL Research, Bloomberg, latest data available as of January 2020

P/E = Price to Earnings Ratio

54.2

18.510.0

30.0

50.0

70.0

Jan-1

0

Apr-

11

Jul-1

2

Oct-

13

Jan-1

5

Apr-

16

Jul-1

7

Oct-

18

Jan-2

0

HUVR P/E (x) ITC P/E (x)

15.7

12.3

17.4

8.2

3.0

4.0

5.0

6.0

7.0

5.0

9.0

13.0

17.0

21.0

Jan-1

0

Apr-

11

Jul-1

2

Oct-

13

Jan-1

5

Apr-

16

Jul-1

7

Oct-

18

Jan-2

0

ROA (%) (RHS) P/E (x)Avg (x) Max (x)Min (x)

Hindusan Unilever vs ITC Reliance: valuations vs returns

Source: Companies, MOSL Research, Bloomberg, latest data available as of January 2020

ROA = Return on Assets Ratio



17

Source: RIMES, MSCI, IBES, Morgan Stanley Research, latest data available as of January

2020

Fwd PE = Forward Price to Earning, 10Y = 10 Years, 5Y = 5 Years

Valuations: Not cheap, but on cyclically depressed earnings

MSCI India Index P/E ratio MSCI India Index P/B ratio

Source: RIMES, MSCI, IBES, Morgan Stanley Research, latest data available as of January

2020

PB = Price to Book, 10Y = 10 Years, 5Y = 5 Years

5

7

9

11

13

15

17

19

21

23

25

199

5

199

6

199

7

199

8

199

9

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

201

9

Fwd PE

10Y Average

5Y Average

MSCI India

1

2

3

4

5

6

7

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

PB

10YAverage5Y Average

MSCI India

18

India offers a large universe of investable opportunities

A solid in-house research team, analysis tailor-made to long term investing

101 Indian companies (market capitalisation of USD 1,395 billion) under formal coverage

68 companies classified as Premium or Quality (market capitalisation of USD 893 billion)

5 year USD expected return (compound annual growth rate)

For 101 stocks under coverage (market cap weighted) 11.95%

For 68 premium and quality stocks (market cap weighted) 12.40%

For ‘best 30’ Premium & Quality stocks (market cap weighted) 16.00%

‘Best 30’ Year 6 ROE forecast of 25.85%

Source: J.P. Morgan Asset Management. Data as of 20th January 2020. ROE = Return on Equity.

Forecasts are not a reliable indicator of future performance.

The identification of superior growth, compounded over long periods of time, within an appropriate valuation

framework, is the primary way in which we seek to add value to client portfolios.

19


Source: Companies, Bloomberg, MOSL Research, Axis Capital, latest data available as of January 2020


without notice. There can be no guarantee they will be met. The securities above are shown for illustrative purposes only. Their inclusion should not be interpreted as a recommendation to buy or sell

(0)

(2) (2)

(4) (4)

1

(1)

2

4

6

8

(6)

(4)

(2)

-

2

4

6

8

10

FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20EFY21EFY22E

(Rs Bn) Free cash flow

0

100

200

300

400

500

600

700

Ma

r-12

Jul-1

2

Nov-1

2

Ma

r-13

Jul-1

3

Nov-1

3

Ma

r-14

Jul-1

4

Nov-1

4

Ma

r-15

Jul-1

5

Nov-1

5

Ma

r-16

Jul-1

6

Nov-1

6

Ma

r-17

Jul-1

7

Nov-1

7

Ma

r-18

Jul-1

8

Nov-1

8

Ma

r-19

Jul-1

9

Nov-1

9

Average Daily Value Traded (INR bn)

FY12 ROE ~ 31%

FY19 ROE ~ 11%

Multi Commodity Exchange of India (MCX) Apollo Hospitals Enterprise

20

YES Bank – Oh NO

Source: MOSL Research, latest data available as of January 2020

39

0

100

200

300

400

Jan-1

0

Apr-

11

Jul-1

2

Oct-

13

Jan-1

5

Apr-

16

Jul-1

7

Oct-

18

Jan-2

0

Price (INR)

0.4

3.3

0.4

0.0

1.0

2.0

3.0

4.0

Jan-1

0

Apr-

11

Jul-1

2

Oct-

13

Jan-1

5

Apr-

16

Jul-1

7

Oct-

18

Jan-2

0

P/B (x) Max (x) Min (x)

YES Bank Stock Price YES Bank Price to Book (P/B) Ratio

Source: MOSL Research, latest data available as of January 2020


21

Summary

Slower Growth = fewer opportunities

Quality earnings with optionality

Valuations: relying on stock fundamentals


Staying disciplined and true to process



jpmorgan indian investment trust plc · 1 investment objective and risk profile jpmorgan indian...

Documents