Email of the day (1)
Comment of the Day

October 31 2013

Commentary by David Fuller

Email of the day (1)

On India's stock market rise, at least in INR
"In answer to your question about who is buying Indian shares I can only suggest it is domestic investors. Look at JII JP Morgan Indian Investment Trust. The Sensex goes one way and JII the other. The discount has ballooned to over 14% putting it on a par with the Japanese Smaller Companies sector which is about as unpopular a sector as one can find over the last decade! All the best"

David Fuller's view Thanks for your reply which will also be of interest to other subscribers. If you have held the JPMorgan Indian Investment Trust (JII) since 2003, as some of us have, and also added on some of the dips, the first five years were terrific but too good to last. 2008 took care of that and India was once again an upside leader for the next two years. The real disappointment has been the last three years and I attribute that mainly to very bad governance, which also led to panic selling of the Indian rupee, shown inversely on a daily chart.

Fortunately, governance often goes in cycles. After all, governance is not a mystery and plenty of Indians know what they need to change. I do not think governance could get much worse in India than what we saw in 2011 and 2012, and it has been improving since mid-year, not least with the appointment of Raghuram Rajan as governor of the Reserve Bank of India. He quickly demonstrated his ability and knows what he wants to achieve over the next five years, as you will see in this excellent article from the BBC's chief business correspondent, Linda Yueh.

I certainly agree that investors in the West have not been bidding India higher, judging from the JPMorgan Indian Investment Trust's current discount to NAV of -14.73. However, it has a good portfolio as you can see from this Top-10 list headed by the IT giant, Infosys Ltd. JII's underperformance is due partly to the big discount to NAV but mostly to the INR's previous weakness, shown inversely against the USD on a weekly basis. You can see this by comparing Infosys quoted in USD versus Infosys quoted in INR. Both are currently near resistance levels but look promising over the medium term.

With Mr Rajan in charge of the central bank I do not think we will see 68 rupees to the US dollar again, particularly if Narendra Modi wins the General Election in 1H 2014. Also, with the financially savvy and pro growth Narendra Modi and Raghuram Rajan leading India's two branches of government, I think Americans and many other Westerners would be wishing that they had a similar combination in charge of their governments. I have enough JII for now and will hold on to it at least through next year's General Election. If Modi wins, I think we will see plenty of mostly one-way investor traffic back into India over the following five years.

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