JPMorgan Indian loses out as HDFC foreign premium shrinks – JPMorgan Indian Investment Trust says that, for the year ended 30th September 2017, the MSCI India Index (in sterling terms), returned +10.5%. The company produced a return on net assets of +9.0% over the year. However, the return to shareholders was ahead of the benchmark, at +12.0%, reflecting a narrowing of the discount from 13.7% to 11.4%.
The manager says that the tilt towards domestic cyclical stocks continued to help with the overweight in private sector financials and the autos sector outperforming the market. HDFC Bank, IndusInd Bank and Kotak Bank continued to do well in a sluggish macro environment as private sector banks gained market share from state owned banks, which continued to be bedevilled by nonperforming loans and weak capital adequacy. The overweight in the autos sector also helped as demand recovered after the initial shock of demonetisation.
HDFC Bank requires special mention since the price of the shares available for foreign investment, which are the shares held by the company, significantly lagged the underlying local stock price by more than 20% as the premium on the shares open to foreigners contracted sharply. As a result the largest holding has contributed much less than the good operating performance of the bank and its domestic shares would have led one to expect, and this one factor accounts for half of the ‘stock selection’ negative contribution experienced by the fund.
Holdings in some of the mid and small caps holdings, such as Motilal Oswal Financial Services and Godrej Industries, were also among the key contributors as mid and small caps continued to significantly outperform large caps on the back of the tidal wave of liquidity from domestic retail investors.
Reliance Industries, which they do not hold, was the largest detractor to relative performance as the stock rose sharply following the strong response to the launch of its telecom business. The other major detractor was the underweight in global cyclicals as the sector rallied on the back of the rebound in commodity prices over the year.
JII : JPMorgan Indian loses out as HDFC foreign premium shrinks