Jewel in the crown

How Ian Cowie fell in love with Indian trusts.

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Elections underway in India, the world’s most populous country, should prompt investors to consider the extraordinary economic progress already achieved – and the potential for more to come. For example, the Indian Prime Minister Narendra Modi points out that when he was first elected a decade ago, his country had the tenth-biggest gross domestic product (GDP), a measure of economic output, on the planet.

Since then, India’s economy has overtaken those of Canada, Russia, France and the United Kingdom to rank fifth, according to the World Bank, which predicts India’s GDP will grow by 7.5% this year. If that rate of growth is sustained it would double the size of the economy in the next decade.

It is important to understand that future growth is not guaranteed because the past is not necessarily a guide to the future. Even so, last December Modi told a group of diamond traders: “You all know India has risen to become the fifth biggest economic power in the world from tenth in the last ten years. Now, Modi has given his guarantee that in his third innings, India will be among the world's top three economies.”

If that remarkable feat was achieved, it would mean overtaking the economies of Germany and Japan. Lest this sound like a politician’s pipe dream, it is notable that the investment bank Jefferies predicts India will hit this target by 2027, which would be 60 years since the sub-continent achieved independence from the British Empire.

Coming down from the clouds of macroeconomics, individual shareholders in investment trusts have been well rewarded for accepting the risks entailed in this emerging market, as I know from personal experience. Back in 1996 I paid 63p per share in what was then called Fleming Indian and is now listed as JPMorgan Indian (stock market ticker: JII), with this stock trading at 945p last week.

“India’s economy has overtaken those of Canada, Russia, France and the United Kingdom to rank fifth, according to the World Bank.”

Ian Cowie

ian cowie

You never forget your first ten-bagger and JII is also my longest continuously-held share. But it is only fair to admit that its recent performance has been relatively weak, with total returns over the last year, five years and decade of 20%, 31% and 158% according to independent statisticians Morningstar.

Those returns would lead several other sectors, but JII is actually bottom among the four funds in the Association of Investment Companies (AIC) ‘India/Indian Subcontinent’ sector over the last year, five years and decade. Ashoka India Equity (AIE) leads over the short and medium terms, with total returns of 51% and 161%, but lacks a ten-year track record, having been launched in 2018.

Even so, Ayush Abhijeet, investment director at White Oak Capital, which advises AIE, expressed confidence that there is more to come. He said: “A potential multi-decade growth opportunity is unfolding as incomes per head rise.

“The country is experiencing rapid digitalisation of services, supported by increasing internet penetration, while upgrading the country’s infrastructure, ably supported by a banking system which is at its healthiest in over a decade.”

AIE and JII both offer exposure to large, long-established businesses listed on the Bombay Stock Exchange (BSE), such as Nestlé India, a subsidiary of the Swiss food and drink giant, and Hindustan Unilever, a subsidiary of the Anglo-Dutch consumer goods group.

Meanwhile, medium and smaller companies have paid off for India Capital Growth (IGC), with total returns of 39%, 83% and 306% over the usual three periods. That performance places IGC second over the short or medium term and first over the long term. 

Like Abhijeet, IGC’s manager, Gaurav Narain, argues that India’s recent returns are likely to be sustained. He explained: “In the past few months, Modi’s been travelling the country every day visiting various cities and inaugurating projects worth billions of dollars – he’s a busy man and his plans for India don’t seem to be slowing down anytime soon.”

For completeness, abrdn New India (ANII) makes up the quartet of investment trusts in this sector with total returns of 38%, 49% and 224%. Like AIE and JII, ANII focuses on blue chip businesses such as the Bangalore-based information technology business, Infosys, co-founded by our Prime Minister Rishi Sunak’s father-in-law, Narayana Murthy.

None of these investment trusts pay any dividends but all have delivered substantial capital gains. It’s hard paneer for folk who have yet to share in those returns but – if Abhijeet and Narain, among others, are right – there is still time for investment trust shareholders to gain professionally-managed exposure to India’s potential in the years and decades ahead.

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