India has been in the news for all the wrong reasons lately – a coalition government has resulted in political deadlock in a number of key areas, meaning that key tax reforms and publicly funded infrastructure products have been put off. This, along with the "troubling trade deficit", has seen India’s annual rate of growth fall from 7 per cent to around 5 per cent.
However, after meeting with Jupiter’s Avinash Vazirani, Morgan (pictured) says there are plenty of reasons for long-term investors to be encouraged, and is tipping the market to bounce back strongly from such low levels.
"There are good reasons to be positive," he said. "A recent moderation in commodity prices is welcome and could allow interest rates to be cut further, helping stimulate growth."
"On the political front too, things look set to improve. An election must take place within the next year, and could be as early as October. Assuming a decisive result, long-awaited reforms may then take place."
Morgan points to the buoyancy of Indian companies as a particularly good omen.
"An important results season is presently underway and, on the whole, firms have pleasantly surprised investors by controlling costs and maintaining healthy profit margins," he said.
"Vazirani sees some particularly attractive opportunities. For instance, he believes lower interest rates have not yet been factored into the valuations of bank shares."
"There have already been several interest rate cuts by the central bank, and as these fall further it is likely more loans will be taken out, increasing bank profits."
Morgan points to India’s radical biometric identification programme as another potential driver of financials in India.
"This initiative is aimed at reducing waste and corruption by paying welfare benefits directly to individuals," he explained. "Banks should continue to gain lots more customers as poorer Indians increasingly take control of their finances."
"Vazirani believes the ID card scheme also has important consequences for the consumer sector. He is seeking to capitalise on increasing disposable incomes by investing in businesses such as United Spirits, India's largest spirit company."
As FE Analytics data shows below, the Indian market has had a torrid time of late. The MSCI India index is down almost 9 per cent over a three-year period, compared with gains of 34.05 per cent from the MSCI AC World index.
Performance of indices over 3yrs
Source: FE Analytics
Of the 13 India funds in the IMA universe with a long enough track record, only two – First State India Subcontinent and Aberdeen Global Indian Equity – have managed to make money over this time. The former is soft-closed.
Vazirani's Jupiter India fund is down around 9 per cent over the period, but is still well ahead of the index, which is also its benchmark, since its launch in February 2008.
Performance of fund vs index since launch
Source: FE Analytics
Morgan says he likes Vazirani’s emphasis on valuations, and the fact he has the knowledge and experience to venture down the market cap spectrum.
"With over 3,500 quoted companies in India, there are many opportunities to find businesses with exciting potential at attractive prices," he said.
"It is an under-researched market receiving modest analyst coverage, especially in medium-sized and smaller companies, something Vazirani (pictured) is keen to exploit.""These areas are a longstanding feature of the fund and he is currently particularly excited about these prospects."
"He says the top-20 largest stocks in the index are presently receiving the overwhelming majority of attention, resulting in a larger disparity in valuations between these and mid-sized companies than at any point of his 18-year career."
Jupiter India requires a minimum investment of £500 and has an ongoing charges figure (OCF) of 1.88 per cent.
The four crown-rated fund is highly rated by Rob Gleeson’s FE Research team, which includes it on the recommended FE Select 100 list.
"Vazirani is regarded as one of the most successful and knowledgeable fund managers in this area," the team said in a recent note to advisers.
Rajendra Nair and Rukhshad Shroff of the JP Morgan Indian Investment Trust have also recently highlighted the "exciting" valuations in the region at the moment.
"While there are not always parallels between economic and stock market performance, the signs for investors in Indian companies are also encouraging," said Shroff.
"Measures of valuing companies’ shares, such as price/earnings ratios and price/book value, are below their long-term averages, meaning shares can be bought relatively cheaply, while analysts expect strong growth in company earnings over the coming year."
"Given the current opportunity to buy growing companies at below-average valuations, we are optimistic that Indian equities have the potential to perform significantly better over the next few years than they have in the recent past," he added.
