Sit tight
We anticipate that the Indian economy will be a global powerhouse over the next 25 years and, accordingly, some exposure to the country is warranted. For this reason we issued a buy recommendation on JPMorgan Fleming Indian Investment Trust (JII) at 106p in July (FAT43). We believe that the listed trust provides an excellent vehicle to gain exposure to India's burgeoning economy.
| "India's cost structure, skill base, and intellectual capital rivals any developed nation. " |
We have been encouraged by price action since our initial recommendation with the shares rebounding from a sharp sell-off during April and May. The latest gains have seen JII trade to a four month high of 122p.
The Trust continues to trade tightly around net asset value per share which currently stands at 124.3p (or £104 million). Encouragingly, JII has continued to perform strongly against the fund's benchmark, delivering a return of 52.1 percent over the 5 years to 31 July 2004 as against 6.3 percent for the MSCI India Index.
As noted in FAT43 we applaud the strategy of the Trust's fund manager to back his judgment on a stock and take active portfolio positions against the benchmark index. Fat Prophets are active investors and when taking a position in an investment fund we look for a manager with a commensurate investment philosophy.
JII has maintained an overweight stance towards industrials, materials and the consumer discretionary sectors, while underweighting the energy, financial and consumer staples sectors. The portfolios largest three holdings remain Infosys, Reliance Industries and Bharat Heavy Electricals. We have been impressed by the recent performance of the fund's portfolio and attribute this to a combination of astute stock selection and gains in the broader Indian equity market. Although the SENSEX has risen 7 percent in the last 2 months we remain comfortable with the market's valuation - the average price earnings multiple is currently just 10.7 times one year forward earnings.
The Indian economy expanded at 8.2 percent in the first quarter of the year and it is not surprising that the pace of growth has slowed somewhat since. However recent forecasts suggest that Asia's third largest economy will still grow by at least 6 percent this year, which remains impressive. We expect the country's underlying fundamentals to underpin increasing strength in the economy and local share market in the years ahead. India's cost structure, skill base, and intellectual capital rivals any developed nation. The fact that English is spoken as a second language is also a significant advantage.
We believe that Indian companies which are able to successfully access the large pool of intellectual capital, and the rising middle class incomes, will prove excellent investments. Given the fund's impressive performance to date we have great confidence in the manager's ability to identify such companies.
From a technical perspective further gains in JII towards 130p appear likely in the near term. However given the powerful rally during 2003, additional consolidation will probably be required before the longer term upward trend resumes. In the meantime JII will continue to be firmly held within the Fat Prophets Portfolio.
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Fat Prophets has made every effort to ensure the reliability of the views and recommendations expressed in the reports published on its websites. Fat Prophets research is based upon information known to us or which was obtained from sources which we believed to be reliable and accurate at time of publication. However, like the markets, we are not perfect.
This report is prepared for general information only, and as such, the specific needs, investment objectives or financial situation of any particular user have not been taken into consideration. Individuals should therefore discuss, with their financial planner or advisor, the merits of each recommendation for their own specific circumstances and realise that not all investments will be appropriate for all subscribers.
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As at the date at the top of this page, Directors and/or associates of the Fat Prophets Group of Companies currently hold positions in Avexa (AVX), Evolution (EVN), Cerro Resources (CJO), Energy Action (EAX), Mt Isa Metals (MET), Telstra (TLS), Woodside Petroleum (WPL), ANZ (ANZ), Austar (AUN), Carsales.com (CRZ), Gold Road (GOR), IOOF Holdings (IFL), Magellan Financial group (MFG), Paladin Energy (PDN), QBE Insurance (QBE), Platinum Australia (PLA), Datasquirt (DSQ), Hodges Resources (HDG), Newcrest Mining (NCM), Oil Search (OSH), Zambezi Resources (ZRL), Auroa Minerals (ARM), Billabong (BBG), Pioneer Resources (PIO), Runge (RUL), Westpac (WBC). These may change without notice and should not be taken as recommendations.