JPMorgan Indian Investment Trust

Transcription

1 JPMorgan Indian Investment Trust Annual General Meeting 29 January 2015 Rukhshad Shroff, CFA Managing Director

2 JPMorgan Indian Investment Trust Performance update Cumulative Performance () 1 Year 3 Years 5 Years 10 Years Since Inception^ JPM Indian NAV* MSCI India Index # Excess Return As at 31 Dec 2014 ^ Inception: 1/7/94. # MSCI India (NDR); Prior to 1 Oct 03, BSE100 Source: J.P. Morgan Asset Management, MSCI, Thomson Reuters Datastream. Performance data has been calculated on NAV to NAV basis, including ongoing charges and any applicable fees, with any income reinvested, in GBP. Past performance is not an indication of future performance. 2

3 JPMorgan Indian Investment Trust Performance update Quarterly Rolling 12m Performance ending December 2014 () JPM Indian NAV* MSCI India Index # Excess Return As at 31 Dec 2014 # MSCI India (NDR); Prior to 1 Oct 03, BSE100 Source: J.P. Morgan Asset Management, MSCI, Thomson Reuters Datastream. Performance data has been calculated on NAV to NAV basis, including ongoing charges and any applicable fees, with any income reinvested, in GBP. Past performance is not an indication of future performance. 3

4 JPMorgan Indian Investment Trust Cumulative performance since launch As at 31 December 2014 Pence per Share JPM Indian IT (NAV) JPM Indian IT (Share Price) MSCI India (NDR) (Prior to 1 Oct 03, BSE100) Source: Bloomberg, J.P. Morgan Asset Management, Thomson Reuters Datastream Source: NAV Performance data has been calculated on NAV to NAV basis, including ongoing charges and any applicable fees, with any income reinvested, in GBP.. Inception: 1/7/94. Rebased to 100 in 1994 Past performance is not an indication of future performance. 4

5 Top 10 contributors/detractors to active returns 12 months as at 31 Dec 2014 Average Average Contributions Fund Benchmark^ Stock to Active Top 10 Contributors Weight Weight Return Return IndusInd Bank Ltd HDFC Bank Limited Kotak Mahindra Bank Limited Maruti Suzuki India Limited Gujarat Pipavav Port Limited Axis Bank Limited Ashok Leyland Limited Motilal Oswal Financial Services Limited Shree Cement Limited Tata Motors Limited Average Average Contributions Fund Benchmark^ Stock to Active Top 10 Detractors Weight Weight Return Return Larsen & Toubro Ltd State Bank of India Mahindra & Mahindra Financial Services Ltd Adani Ports & Special Economic Zone Ltd Dr. Reddy's Laboratories Ltd Infosys Limited Housing Development Finance Corporation Limited Aurobindo Pharma Ltd Bharat Petroleum Corporation Limited LIC Housing Finance Ltd ^ MSCI India (NDR). Source: FactSet, J.P. Morgan Asset Management. As at 31 Dec Past performance is not indicative of future performance. The companies/securities above are shown for illustrative purposes only. Their inclusion should not be interpreted as a recommendation to buy or sell. However, it cannot be assumed that these types of investments will be available to or will be selected by the fund in the future. Subject to change at the discretion of the Investment Manager without notice. 5

6 Holdings analysis Total number of holdings: 52 Fund Holdings # Sector Infosys Information Technology 7.7 Housing Development Finance Financials 6.9 HDFC Bank Financials 6.7 Tata Consultancy Services Information Technology 6.3 Reliance Industries Energy 5.0 Tata Motors Consumer Discretionary 4.4 Sun Pharmaceutical Industries Health Care 4.1 IndusInd Bank Financials 3.8 Kotak Mahindra Bank Financials 3.7 Maruti Suzuki India Consumer Discretionary Concentration Percent of Total Market Cap (USD) Fund Benchmark^ Top 10 Holdings 51.6 > 100 bn Top 20 Holdings bn <> 100 bn Top 30 Holdings bn <> 50 bn ^ MSCI India (NDR); Prior to 1 Oct 03, BSE100 # As at 30 Nov 2014 Source: J.P. Morgan Asset Management, as at 31 Dec bn <> 10 bn bn <> 5 bn bn <> 3 bn < 1 bn The Fund is an actively managed portfolio, holdings, sector weights, allocations and leverage, as applicable are subject to change at the discretion of the Investment Manager without notice 6

7 Top five active positions Top 5 Overweight () Stock Name Sector Portfolio Weight Benchmark* Weight Difference HDFC Bank Financials IndusInd Bank Financials Kotak Mahindra Bank Financials Maruti Suzuki India Consumer Discretionary Axis Bank Financials Top 5 Underweight () Stock Name Sector Portfolio Weight Benchmark* Weight Difference ITC Consumer Staples Infosys Information Technology Hindustan Unilever Consumer Staples Housing Development Finance Financials Dr. Reddy's Laboratories Health Care * MSCI India Index Source as at 30 Nov 2014 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. 7

8 Key issues Growth appears to have bottomed Monetary conditions should ease A strong government could initiate important structural reforms Valuations are modest Flows into equities could be strong Opportunity for active, bottom up investing The opinions and views expressed here are those held by the author at the time of publication, which are subject to change and are not to be taken as or construed as investment advice. 8

9 Beyond intent The first 6 months have been in the right direction Improving Ease of Doing Business Move towards online project approvals for environment and forest clearance will automatically lower the scope for corruption Ease in environment rules for mining, roads, power and irrigation projects Labor reforms are moving ahead with new bills in parliament which seeks to amend a number of labour laws, including: an increase in overtime hours, hiring apprentices, relaxing the earlier bar on employing women in factories for night shifts, liberalize labour inspection etc. Ending Policy Paralysis A number of bureaucratic layers have been reduced, unnecessary committees dissolved abolished Groups of Ministers (GoM) and Empowered GoM; abolished the Planning Commission a remnant of India s socialist past Several ministries merged ministries reduced from 79 to 45; related sectors such as coal and power merged Eleven point agenda for government departments to eliminate unnecessary rules and reduce approval layers Cleared 163 infrastructure projects worth USD100bn Impetus to Infrastructure and manufacturing Relaxed rules for banks to increase infrastructure lending Hike in Foreign Direct Investment limit in defence is aimed at boosting domestic manufacturing of defence equipment; 100 FDI in railway infrastructure Agreement with foreign countries to boost investments Japan USD35bn, China USD25bn, USA USD41bn Tax incentives for manufacturing; launched the Made in India campaign aimed at boosting manufacturing and creating jobs Source: J.P. Morgan research As at 31/12/2014 9

10 GDP Growth Coming off the bottom, slowly 12 Year on Year Y Average Growth: /04 3/05 9/05 3/06 9/06 3/07 9/07 3/08 9/08 3/09 9/09 3/10 9/10 3/11 9/11 3/12 9/12 3/13 9/13 3/14 9/14 Source: Morgan Stanley Research, 12 Jan

11 with pockets of opportunity Medium & Heavy Vehicle Sales Passenger Car Sales YoY YoY, 3MMA YoY YoY, 3MMA /04 1/06 2/07 3/08 4/09 5/10 6/11 7/12 8/13 9/ /04 2/06 4/07 6/08 8/09 10/10 12/11 2/13 4/14 Source: Morgan Stanley Research, 12 Jan 2015 Source: Morgan Stanley Research, 12 Jan 2015 MMA is monthly moving average 11

12 Falling inflation should lead to lower rates Inflation YoY Rates Repo Rate SBI 1 year Deposit Rate* 10 Yr Yield 2 0 WPI CPI - New Index /05 4/06 4/07 4/08 4/09 4/10 4/11 4/12 4/13 4/14 4 5/04 7/05 9/06 11/07 1/09 3/10 5/11 7/12 9/13 11/14 Source: Morgan Stanley Research, 12 Jan 2015 * Have used State Bank of India (SBI)1-year deposit rates. For recent months we have used SBI special deposit rates on 555 days. Source: Morgan Stanley Research, 22 Jan

13 High real rates= scope for easing monetary policy Real Interest Rates Have Turned Positive RBI's indicative real rate of 1.5 Real deposits rate (SBI 1yr deposits - CPI inflation) FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 Source: Motilal Oswal Securities (MOSL), 21 Jan 2015 FY is Fiscal Year 13

14 Credit cycle could start to recover YoY Credit Deposit 8 4 Real 1Y Deposit Rate (on CPI IW) Real 1Y Deposit Rate (on new CPI) /08 12/09 12/10 12/11 12/12 12/13 12/ /04 2/06 4/07 6/08 8/09 10/10 12/11 2/13 4/14 Source: Morgan Stanley Research, 12 Jan 2015 Source: Morgan Stanley Research, 12 Jan

15 Valuations: Rerated MSCI India Fwd PE 10Y Average 5Y Average 7 6 PB 10Y Average 5Y Average Source: RIMES, (data provider) MSCI, Institutional Brokers' Estimate System ( IBES), Morgan Stanley Research, 22 Jan 2015 PE is Price to Earnings Source: RIMES, MSCI, IBES, Morgan Stanley Research, 22 Jan 2015 PB is price to book 15

16 Small caps are no longer outright cheap MSCI India Small cap trailing Price to Book (PB) 7.4 MSCI India small cap relative to MSCI India Trailing Price to Book (PB) year average year average Source: RIMES, MSCI, Morgan Stanley Research, 22 Jan 2015 Source: RIMES, MSCI, Morgan Stanley Research, 22 Jan

17 Earnings revisions have disappointed recently, but... FY15E Earnings Per Share (EPS) up/downgrade (INR) FY16E Earnings Per Share (EPS) up/downgrade (INR) FY15 EPS (INR) FY16 EPS (INR) 1,586 1, , ,518 1,525 FY15 EPS Growth YoY () ,545 1,524 1,532 1,529 FY16 EPS Growth YoY () , , ,875 1, , ,469 1,793 1,761 1,766 Dec 12 Mar 13 June 13 Sep 13 Dec 13 Mar 14 June 14 Aug 14 Sep 14 Nov 14 Dec 14 Dec 13 Mar 14 June 14 Aug 14 Sep 14 Nov 14 Dec 14 Source: Motilal Oswal Securities Ltd, 31 Dec 2014 Source: Motilal Oswal Securities Ltd, 31 Dec

18 Profits are at a cyclical trough Profits as GDP FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15CL FY16CL FY17CL Source: CLSA(Securities Research), 21 Jan

19 Flows have been very strong, but... 30,000 25,000 20,000 15,000 10,000 5,000 0 US$ mn FII (Cash) DII (Domestic MF + Insurance) FII Debt US $mn ,000-10,000-15,000 C2000 C2002 C2004 C2006 C2008 C2010 C2012 C Flows into DMFs (Trailing 3M) /99 7/01 2/03 9/04 4/06 11/07 6/09 1/11 8/12 3/14 Source: SEBI, BSE, Morgan Stanley Research *C2014 data updated till 8 Jan 2015 MF is Mutual Funds, FII is Foreign Institutional Investors; DII is Domestic Institutional Investors Source: AMFI, Morgan Stanley Research, 12 Jan 2015 DMF s are Domestic Mutual Flows 19

20 Domestic exposure to equities remains abysmally low Household assets Household exposure to equities Equities 2.2 Cash 3.1 Provident and Pension Funds 4.2 Insurance Funds Bank Deposits Property 56.2 Gold Total assets: US$6tn 0.0 3/07 3/08 3/09 3/10 3/11 3/12 3/13 3/14 Source: CLSA & RBI, 21 Jan 2015 Source: CLSA & RBI, 21 Jan

21 Current Account: From deficit to surplus? Current Account Deficit, Trailing 4-quarter sum MSe US$ bn of GDP (RHS) Mar-94 Mar-96 Mar-98 Mar-00 Mar-02 Mar-04 Mar-06 Mar-08 Mar-10 Mar-12 Mar-14 Mar-16E Source: Morgan Stanley Research, E-Morgan Stanley Research Estimates, 23 Jan 2015 MSe is the Morgan Stanley Estimate 21

22 We believe the current risks are: Reforms: willingness v/s ability An active judiciary Geopolitics under a Bharatiya Janata Party (BJP)-led majority USD, US rates, deflation, flow linkages The opinions and views expressed here are those held by the author at the time of publication, which are subject to change and are not to be taken as or construed as investment advice. 22

23 Outlook Growth appears to have bottomed Monetary conditions should ease A strong government could initiate important structural reforms Valuations are modest Flows into equities could be strong Opportunity for active, bottom up investing The opinions and views expressed here are those held by the author at the time of publication, which are subject to change and are not to be taken as or construed as investment advice. Forecasts, projections and other forward looking statements are based upon current beliefs and expectations. They are for illustrative purposes only and serve as an indication of what may occur. Given the inherent uncertainties and risks associated with forecasts, projections and other forward statements, actual events, results or performance may differ materially from those reflected or contemplated. 23

24 Risk Information The value of investments and the income from them may fall as well as rise and investors may not get back the full amount invested. Investment trusts may borrow to finance further investment (gearing). The use of gearing will increase the volatility of movements in the Net Asset Value (NAV) per share. This means that a relatively small change, down or up, in the value of a trust's assets will result in a magnified fall or rise, in the same direction, of the investment trust's NAV per share. 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. The trust may invest in smaller company shares, which can be more unpredictable and less liquid than shares of larger companies. Dividend income payments are not guaranteed and may fluctuate. 24

25 This is a promotional document and as such the views contained herein are not to be taken as an advice or recommendation to buy or sell any investment or interest thereto. Reliance upon information in this material is at the sole discretion of the reader. Any research in this document has been obtained and may have been acted upon by J.P. Morgan Asset Management for its own purpose. The results of such research are being made available as additional information and do not necessarily reflect the views of J.P. Morgan Asset Management. Any forecasts, figures, opinions, statements of financial market trends or investment techniques and strategies expressed are unless otherwise stated, J.P. Morgan Asset Management s own at the date of this document. They are considered to be reliable at the time of writing, may not necessarily be all-inclusive and are not guaranteed as to accuracy. They may be subject to change without reference or notification to you. It should be noted that the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Changes in exchange rates may have an adverse effect on the value, price or income of the product(s) or underlying overseas investments. Both past performance and yield may not be a reliable guide to future performance. There is no guarantee that any forecast made will come to pass. Furthermore, whilst it is the intention to achieve the investment objective of the investment product(s), there can be no assurance that those objectives will be met. J.P. Morgan Asset Management is the brand name for the asset management business of JPMorgan Chase & Co and its affiliates worldwide. You should note that if you contact J.P. Morgan Asset Management by telephone those lines may be recorded and monitored for legal, security and training purposes. You should also take note that information and data from communications with you will be collected, stored and processed by J.P. Morgan Asset Management in accordance with the EMEA Privacy Policy which can be accessed through the following website Investment is subject to documentation which is comprised of the Investment Trust Profiles document and either the Supplementary Information Document (SID) or Key Features/Terms and Condition, copies of which can be obtained free of charge from JPMorgan Asset Management Marketing Limited. Issued by JPMorgan Asset Management Marketing Limited which is authorised and regulated in the UK by the Financial Conduct Authority. Registered in England No: Registered address: 25 Bank St, Canary Wharf, London E14 5JP. Compliance approval number: 4d03c02a8001f