JPMorgan Indian

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN INDIAN INVESTMENT TRUST PLC

UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 31ST MARCH 2021

Legal Entity Identifier: 549300OHW8R1C2WBYK02

Information disclosed in accordance with DTR 4.2.2

CHAIRMAN'S STATEMENT

Whilst the first half of the financial year worked broadly in the Company's favour in terms of performance, the news was less positive on the COVID-19 pandemic front in India. Although some countries are racing ahead with successful vaccination programmes, it is still a mixed picture globally. Tragically, India reported the world's largest ever one-day jump in new daily COVID-19 infections in April 2021, highlighting the severity of the second wave of the pandemic and making the country of 1.4 billion the new frontline in the world's struggle against the virus.

Performance

The Company made good progress in the six months ended 31st March 2021. During the period, the Company produced a total return on net assets of +21.8%, which compares with a return of +19.2% from its benchmark index, the MSCI India Index (in sterling terms). The total return to shareholders was higher at +28.1% during the period, reflecting the narrowing of the share price discount to net asset value over the six months from 16.8% at the previous financial year end to 12.5% at the period end. Since 31st March 2021, the Company's NAV has risen by 2.84% as at 3rd June 2021.

The Investment Managers in their report provide a detailed commentary on these figures and discuss performance, activity and the outlook for the Indian market.

Gearing

The Company has a floating rate loan facility to provide the Investment Managers with the flexibility to gear the portfolio when they think it is appropriate to do so. As at 31st March 2021, the Company's portfolio held 0.9% net cash.

Discount

The Board has guidelines in place with regard to the management of the discount of the share price to net asset value at which the Company's shares trade. During the half year to 31st March 2021, the Company repurchased 452,605 Ordinary shares into Treasury, for a total consideration of £2,684,000. This amount represented 0.6% of the issued Ordinary share capital at the beginning of the year.

The Board's objective remains to use the repurchase authority to manage imbalances between the supply and demand of the Company's shares, with the intention of reducing the volatility of the discount.

The Company currently holds 21,818,991 shares in Treasury which may only be reissued at a premium to the prevailing net asset value at the time of reissue. The Company has not repurchased any shares into Treasury subsequent to the half year end.

Conditional Tender Offer

As announced on 26th January 2021, following consultation with the Company's advisers, a tender offer will be made to shareholders for up to 25% of the Company's outstanding share capital, at net asset value ("NAV") less costs if, over the next five years (from the start of the current financial year being 1st October 2020), the Company's NAV total return in sterling on a cum income basis does not exceed the total return of the MSCI India Index in sterling terms (the "Benchmark") plus 0.5% per annum over the five year period on a cumulative basis. If the tender offer is triggered, it will be subject to shareholder approval at the relevant time.

Any tender offer will also be conditional on shareholders approving the Company's continuation vote in 2024.

Taxation

As has been explained previously, the India-Mauritius tax treaty was amended with effect from May 2017 since when the advantages of investing in India via Mauritius have, to a large degree, been removed. The process to move the Company's assets to the UK parent company has been continuing to date.

Of particular note in this period is the consolidated tax charge of £10.4m, which reflects an increase in the unrealised capital gains liability to £11.4m from £1.6m at 30 September 2020. This is due to the significant increases in value of many of the holdings in the portfolio, both those held at 30 September 2020 and those purchased during the period.

The Board

As announced last year, Nimi Patel stepped down from the Board at the conclusion of the Annual General Meetings held on 2nd February 2021, having served as a Director since 2011. On behalf of the Board and shareholders, I would like to thank her for her wise counsel and valuable contribution to the Company during her tenure and wishes her well for the future. 

As also reported last year, Hugh Sandeman has indicated his intention to step down in 2022. Therefore, in anticipation of his retirement at the 2022 Annual General Meeting, the Board plans to start a recruitment process in the autumn with a view to appointing a new Director and to agree the next Senior Independent Director in early 2022.

Outlook

As COVID-19 continues to have a significant impact on global economies and equity markets as well as on people's personal lives across the world, the short-term position in India will remain particularly challenging. That said, overall the Board believes that investors with a long-term investment horizon will benefit from focusing on the many opportunities presented by rising incomes and consumption in India. After a period of weak earnings over the past few years, India has been forecast to deliver the fastest growth rate of any major country over the next decade. With over 480 million Indians under the age of 20 - considerably more than the entire 370 million population of Northern America - the working age population of India is set to grow strongly.

Rosemary Morgan
Chairman

8th June 2021

INVESTMENT MANAGERS' REPORT

The first half of the financial year was an eventful period for financial markets and the world economy in general. Progress on the development of vaccines and expectations for normalisation of economic activity boosted sentiment. However, a vicious second wave of the pandemic in India towards the end of the review period threatened its economic recovery. In this report, we briefly review the key developments, performance, outlook and our key actions over this period. 

Market Review

The Company's benchmark, the MSCI India Index (in sterling terms), rose 19.2% during the review period, outperforming Asian and EM indices. This increase was mainly driven by record inflows from foreign investors, as risk assets rallied globally. Economic activity in India recovered steadily following the easing of lockdown restrictions in mid-2020, with GDP for the fourth quarter growing 0.4% year-on-year. This was better than expected and led to a raft of upgrades in forecasts for the next couple of years. The recovery was also reflected in results for the fourth quarter, which beat expectations for the second quarter in a row.

At the time of writing, almost 65% of the universe has reported results for the March quarter. At an aggregate level, revenues have been in line, while profits have been better than expected due to expansion in operating margins, with almost 60% of companies beating expectations. At a sector level, materials and financials have been the biggest source of positive surprises. The private banks held by the Company, such as HDFC Bank, ICICI Bank and Axis Bank reported good results, with strong loan and deposit growth and lower than expected credit costs. Private banks continue to gain market share from weaker state owned banks, which have been struggling with high credit costs and low capital adequacy levels for the past several years. Commodity stocks not held by the Company, such as Tata Steel, Hindalco and JSW Steel, also reported strong results due to rising commodity prices.

Overall, NIFTY 50 (the benchmark Indian stock market index that represents the weighted average of 50 of the largest Indian companies listed on the National Stock Exchange) constituents reported year-on-year revenue and profit growth of 3% and 25%, respectively. In addition, almost 65% of our broader universe of 130-50 key stocks beat expectations. Consensus forecasts for the next two years have been upgraded, implying a sharp recovery in earnings' growth of 25-30% this fiscal year (2021/22). 

However, the Consumer Price Index (CPI) was volatile during the review period. Following an increase in CPI at the start of the period due to food price inflation it subsequently fell before rising again towards the end of the period with the increase in commodity prices. With inflation remaining closer to the upper end of the target range (6%), the Reserve Bank's Monetary Policy Committee continued to maintain an accommodative stance, leaving policy rates unchanged.

In February, the Finance Minister announced the annual budget, which was focused on boosting the economic recovery with a sharp jump in government capex planned for this year (2021/22). However, execution remains the key challenge. The key negative outcome from the budget was the lack of increases in tax rates which resulted in the fiscal deficit target being higher than expected.

The Modi government has used the pandemic-induced shock to announce a series of long overdue structural reforms to boost employment generation and the sustainable growth rate of the economy. This included a production-linked incentive scheme (PLI) to attract investment into India from global supply chains in 13 sectors and a radical simplification of labour laws to reduce the compliance burden on companies and improve the ease of doing business. The government also announced reforms to boost the productivity of the agricultural sector, which remains very poor, even by emerging markets standards. However, execution of structural reforms has always been the biggest challenge. This could be seen in the fierce protests triggered by the agricultural reforms, which will inevitably delay implementation in the foreseeable future.   

Performance

The net asset value rose by 21.8% during the review period, outperforming the benchmark by 2.6%. The overweight position in the industrials sector was a key contributor to relative performance due to expectations of the cyclical recovery, with stocks such as Larsen & Toubro, Cummins India and TeamLease Services being the major contributors. The underweight position in the energy sector was the biggest contributor to the relative performance, which was mainly due to the underperformance of Reliance Industries. The underweight position in the healthcare sector was another positive contributor, as that sector lagged the more cyclically-oriented sectors during this period.

As existing investors are familiar, we seek to identify superior growth opportunities with a long term horizon and within a disciplined valuation framework. In this context, financials, particularly private banks, are the biggest holding in the Company. As mentioned above, well-run Indian private banks have the unique opportunity to grow across economic cycles by gaining market share from weaker state owned banks, which remain structurally challenged. The IT services sector is another key holding, with the likes of Infosys Technologies and Tata Consultancy Services being among the top holdings. This sector is a key beneficiary of the ever growing spending on technology by companies around the world combined with the cost competitiveness of the Indian outsourcing majors. Consumption is likely to remain a key driver of the Indian economy in the foreseeable future, which will manifest across a variety of sectors. The holdings in the auto sector (Maruti Suzuki and Bajaj Auto), United Spirits, a subsidiary of Diageo and Jubilant Foodworks (master franchisee of Domino's Pizza) are examples of well-run businesses that stand to benefit from this structural trend, though economic cycles will inevitably have an impact on their fortunes in shorter time periods.

The holdings in the Industrials sector, which include the likes of Larsen & Toubro and the building materials sector (ACC, Ambuja Cement and Ultratech Cement) are likely to be among the key beneficiaries of a recovery in the investment cycle in the economy. Cummins, ABB and TeamLease Services are unique businesses in the mid and small cap universe, with strong growth prospects in the long term. The healthcare sector is another example of a structural opportunity for the private sector primarily due to inadequate investment by the government over the past several decades. The holdings in Apollo Hospitals, India's largest chain of private hospitals, and Dr. Lal Pathlabs, a leading chain of diagnostics labs, are likely to be among the key beneficiaries of this trend.

On the other hand, the energy sector remains a key underweight relative to the benchmark. This is mainly the underweight in Reliance Industries, one of the largest companies in the country and in the benchmark, with interests in refining, petrochemicals, telecom and retail. We added this name last year, particularly during the pandemic related sell off when valuations became attractive, although we continue to remain underweight relative to the benchmark.

Turning to individual stocks, selection in consumer discretionary and financials stocks were among the main detractors to relative performance. The underweight position in the materials sector was another headwind to performance. Global commodity names which we did not own such as Tata Steel, JSW Steel, Hindalco and Vedanta rallied sharply due to rising commodity prices, which outweighed the positive performance of our holdings in building materials stocks such as Ultratech Cement and Kajaria Ceramics.

The core overweight position in private banks such as Kotak Bank, HDFC Bank and Axis Bank only partially offset the underweight position in the more cyclically oriented financials such as ICICI Bank, State Bank of India and Bajaj Finance, which outperformed. The overweight position in the poorly performing Multi Commodity Exchange was another significant drag on performance within financials during this period. Similarly, the overweight to Maruti Suzuki and underweight to Tata Motors were detractors during this period. Maruti Suzuki lagged the cyclical recovery, while Tata Motors rallied sharply due to expectations of a sharp rebound in demand globally, which is positive for Jaguar Land Rover's international business. 

Key Portfolio Actions

We selectively increased our cyclical exposure by adding ACC and Ambuja Cements, which are part of the Holcim group. The cement sector is well placed to benefit from the cyclical revival in the next few years, though demand could be impacted in the near term due to the second COVID-19 wave. We also increased the exposure to financials by adding to cyclically oriented names such as ICICI Bank and Shriram Transport Finance. We also added to Reliance Industries, taking advantage of the stock's recent underperformance to reduce the underweight further. However, valuations are not yet sufficiently attractive to warrant a larger exposure.

On the other hand, we trimmed some positions that have done well over the past year such as HDFC Bank, Tata Consultancy Services, Ultratech Cement, Apollo Hospitals and Dr. Lal Pathlabs. We also exited a few names due to expensive valuations (Shree Cement), or to finance the additions mentioned above (Tata Motors, Ascendas India Trust and Godrej Industries)  

Outlook

The second wave of the pandemic seems to have peaked with a sharp fall in the number of new cases over the past couple of weeks. Nevertheless, economic activity is likely to be severely impacted in the short term due to the lockdowns and restrictions imposed in large parts of the country. Meanwhile, vaccination is progressing at a reasonable pace (2-3m doses per day), with almost 250m doses administered so far, though vaccinating most of the population will take a significant period of time. Fortunately the second wave of the pandemic has not derailed broader optimism on the prospects for normalisation and a sustained recovery in the next few years. This should translate into a strong rebound in earnings growth, which has been weak for the past several years. Furthermore, structural reforms in the manufacturing sector have the potential to boost the sustainable growth rate of the economy in the long term, even if they do not have a material impact in the near term.

Investors should also bear in mind that while the near term outlook is undoubtedly dependent on the trajectory of the pandemic, the investment case for India remains compelling in the long term. From a top down perspective, this remains an early stage growth economy with a long runway of growth for the foreseeable future. This is complemented with an investable universe of companies which is large, diverse and ever growing. Our in-house research team covers over 100 companies, with a cumulative market capitalisation of c. US$1.7tn, almost 65% of the total market. This includes a number of well-run businesses across a wide spectrum that have demonstrated remarkable resilience not only to survive the extreme environment over the past year, but also the potential to eventually emerge stronger and grow profitably and create value for shareholders. Despite the challenges over the past few years, our investment process remains oriented towards such businesses and is well placed to benefit from such opportunities in the long term.

Rajendra Nair, CFA
Ayaz Ebrahim
Investment Managers 

8th June 2021

INTERIM MANAGEMENT REPORT

The Company is required to make the following disclosures in its Half Year Report.

Principal and Emerging Risks and Uncertainties

The principal and emerging risks and uncertainties faced by the Company fall into the following broad categories: investment and strategy; environmental; market; legal and regulatory; taxation; corporate governance and shareholder relations; operational, including cyber crime; financial; and political and economic. Information on each of these areas is given in the Business Review within the Annual Report and Financial Statements for the year ended 30th September 2020. However, these risks have been updated to reflect the potential impact of COVID-19 on the operations and controls of the Manager and the Company's other third party suppliers.

Related Parties Transactions

During the first six months of the current financial year, no transactions with related parties have taken place which have materially affected the financial position or the performance of the Company during the period.

Going Concern

The Directors believe, having considered the Company's investment objective, risk management policies, capital management policies and procedures, nature of the portfolio and expenditure projections, that the Company has adequate resources, an appropriate financial structure and suitable management arrangements in place to continue in operational existence for the foreseeable future and more specifically, that there are no material uncertainties pertaining to the Company that would prevent its ability to continue in such operational existence for at least twelve months from the date of the approval of this half yearly financial report. In reaching that view, the Directors have considered the impact of the current COVID-19 pandemic on the Company's financial and operational position. For these reasons, they consider there is reasonable evidence to continue to adopt the going concern basis in preparing the accounts.

Directors' Responsibilities

The Board of Directors confirms that, to the best of its knowledge:

(i)   the condensed set of financial statements contained within the half yearly financial report has been prepared in accordance with the Accounting Standards Board's Statement 'Half Yearly Financial Reports' and gives a true and fair view of the state of affairs of the Company and of the assets, liabilities, financial position and net return of the Company, as at 31st March 2021, as required by the UK Listing Authority Disclosure and Transparency Rules 4.2.4R; and

(ii)  the interim management report includes a fair review of the information required by 4.2.7R and 4.2.8R of the UK Listing Authority Disclosure and Transparency Rules.

In order to provide these confirmations, and in preparing these financial statements, the Directors are required to:

·     select suitable accounting policies and then apply them consistently;

·     make judgements and accounting estimates that are reasonable and prudent;

·     state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

·     prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business;

and the Directors confirm that they have done so.

For and on behalf of the Board
Rosemary Morgan
Chairman

8th June 2021

STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 31ST MARCH 2021

STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 31ST MARCH 2021

STATEMENT OF FINANCIAL POSITION

AT 31ST MARCH 2021

STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED 31ST MARCH 2021

NOTES TO THE FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 31ST MARCH 2021

1.    Principal activity

The principal activity of the Company is that of an investment trust company within the meaning of Section 1158 of the Corporation Tax Act 2010.

2.    Financial Statements

The financial information for the six months ended 31st March 2021 and 2020 has not been audited or reviewed by the Company's auditors.

The financial information contained in these half year financial statements does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006.

The information for the Company for the year ended 30th September 2020 has been extracted from the latest published audited financial statements. Those financial statements have been delivered to the Registrar of Companies and included the report of the auditors which was unqualified and did not contain a statement under either Section 498(2) or 498(3) of the Companies Act 2006.

3.    Accounting policies

The financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRS'), which comprise standards and interpretations approved by the International Accounting Standards Board to the extent that they have been adopted by the European Union.

Where presentational guidance set out in the Statement of Recommended Practice (the 'SORP') for investment trusts issued by the Association of Investment Companies in October 2019 is consistent with the requirements of IFRS, the financial statements have been prepared on a basis compliant with the recommendations of the SORP.

The accounting policies applied to this condensed set of financial statements are consistent with those applied in the financial statements for the year ended 30th September 2020.

JPMorgan Indian Investment Trust plc has a 100% holding in JPMorgan Indian Investment Company (Mauritius) Limited, which qualifies as an investment entity under IFRS 10. The subsidiary is valued at fair value, and the total value at 31st March 2021 is disclosed on a separate line of the Statement of Financial Position. In addition the List of Investments has been prepared on a look through basis, meaning the stocks held by the subsidiary are disclosed.

4.    (Loss)/earnings per share

5.    Net asset value per share

The Company will only re-issue shares held in Treasury at a premium and therefore these shares have no dilutive potential.

JPMORGAN FUNDS LIMITED

8^th June 2021

For further information, please contact:

Divya Amin

For and on behalf of

JPMorgan Funds Limited,

020 7742 4000

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

ENDS

A copy of the half year report will be submitted to the National Storage Mechanism and will shortly be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism

The half year will also shortly be available on the Company's website at www.jpmindian.co.uk where up to date information on the Company, including daily NAV and share prices, factsheets and portfolio information can also be found.