Jupiter India - time for change?
Kate Marshall | Wed 29 May 2019
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- The outcome of the recent general election could drive positive change in India
- A focus on small and medium-sized companies held back the fund's performance over the past 18 months
- We remain positive about the long-term prospects for both India and the fund
Our view
We think India offers lots of potential for long-term investors.
The world's second most populous country has dealt with poverty, corruption and poor infrastructure for many years. But, after pro-business leader Narendra Modi recently secured his second stint as Prime Minister, India has the potential to turn into an economic powerhouse.
Jupiter India is our favourite way to invest in this market. It’s currently on the Wealth 50 list of our favourite funds.
The fund's performance has disappointed over the past couple of years. Poor performance is something we don’t overlook. But all active fund managers go through weaker periods at times, and it’s not unusual for those with even the longest and most successful records to go through tough patches too.
We also expect funds investing in a single emerging country, such as India, to be volatile. These markets are higher risk and at an earlier stage of development. So they’re more likely to suffer from political, economic and regulatory changes than developed markets.
Avinash Vazirani, the fund's manager, has more than two decades of experience investing in these markets. He’s one of the few fund managers we think can perform better than the broader Indian stock market over the long run, and his stock-picking record gives us the confidence to continue to support the fund.
What's impacted performance?
We like the fact Jupiter India invests differently to most other Indian funds. This gives it the potential to perform better than the broader Indian stock market, though the reverse is also true.
The fund's focus on small and medium-sized companies is one of its key differences. Our analysis shows it's boosted performance over the long run. But smaller companies are higher risk and volatile at times. They've been weak compared with larger businesses over the past 18 months and this held back the fund's performance. Remember past performance isn't a guide to future returns.
| Annual percentage growth | |||||
|---|---|---|---|---|---|
| Apr 14 -
Apr 15 |
Apr 15 -
Apr 16 |
Apr 16 -
Apr 17 |
Apr 17 -
Apr 18 |
Apr 18 -
Apr 19 |
|
| Jupiter India | 45.8% | 3.7% | 53.2% | -9.3% | -9.1% |
| FTSE India | 31.5% | -1.0% | 41.2% | 5.7% | 6.5% |
Past performance is not a guide to the future. Source: Lipper IM to 30/04/2019
Vazirani thinks smaller businesses now look even more interesting than in the past. He says the difference between the valuations of large and smaller companies hasn't been this wide for more than a decade.
It means the price you pay for smaller company shares is lower than their future growth potential suggests they should be. Once this potential is recognised by more investors, their share prices could rise and the valuation gap could close.
The manager's used this as a chance to sell and take some profits from investments in larger firms, such as finance companies Edelweiss Financial and REC Limited. He's added to smaller ones he believes offer more potential.
Overall, he's continued to focus on areas that could benefit from broader trends in India, such as rising wealth and domestic consumption. This includes financial, consumer goods, and healthcare companies.
More recently there have been some good news stories in the fund. A number of companies released results and announced profit growth that beat expectations. These include InterGlobe Aviation, which owns low-cost airline IndiGo, and oil & gas companies Hindustan Petroleum and Bharat Petroleum.
How political change can help
Vazirani recently gave us his views on India's general election. Narendra Modi was elected Prime Minister for the second time running and won an even bigger share of the vote. It's a huge vote of confidence in the pro-business leader.
Vazirani thinks it gives Modi a fantastic platform to drive his mandate forward and enact change. His policies could have a big impact on the country's future.
The ultimate test, and what really matters to investors, is whether this translates into better business performance and earnings growth. We think a longer period of political stability could see the economy take big leaps forward, and present exciting opportunities for businesses to grow.
You can find out more about what the election means for investors in our special report.
How will Modi's win impact investors?