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Domestic consumer focus hits Jupiter India's recent performance

Jupiter India's manager sees long-term potential in domestic consumer stocks
April 11, 2019

“If investing was all about politics, a lot of countries would be uninvestable,” according to Avinash Vazirani, manager of Jupiter India (GB00BD08NQ14). And he is not greatly concerned about the outcome of India's upcoming election.

This is despite MSCI India index rising 69 per cent in local currency terms since Prime Minister Narendra Modi won his first five-year term in May 2014, outstripping MSCI Emerging Markets index's and MSCI All Country World index's respective 43 per cent and 53 per cent returns over that period. During his time in office, Mr Modi has made a number of market-friendly reforms, including introducing a corporate and bankruptcy code aimed at shoring up public banks, and enforcing laws on debt repayments. And Indian gross domestic product (GDP) has continued to grow well, which international investors have tried to tap into by investing in India-listed consumer companies. So some investors think Mr Modi needs to win the upcoming election for the market to continue doing well.

“The fact that he’s done so much in one term is nothing short of remarkable," says Mr Vazirani. "But it’s not really relevant whether Mr Modi wins the next election or not. It doesn't matter who comes into power, these changes are irreversible. You can’t take away social security, money digitisation or the bankruptcy code. People used not to repay bank debts, so you had a lot of bad debts in public sector banking. Now we have an act that has teeth. There are [a number] of teething issues, which are going through the courts, but precedents are being set. When it’s done we will have a bankruptcy act that works.”

The act sets the course for better corporate governance and a safer economic system. This is one of a number of market-friendly policies that have encouraged new investors in India and overseas to put money into the Indian equity market. On average, 900,000 new Indian investment accounts are being opened every month, according to Mr Vazirani. This is increasing the velocity of money in India, which should have longer-term benefits for the economy.

“There’s a large pool of savings and significant amounts have gone into equity markets [since] Mr Modi came to power," he adds. "Over the past 12 months, every time the market went down more people opened these accounts.”

Jupiter India Fund's holdings have benefited from the country’s restructured economy, growing wealth and domestic support for equity markets. For example, ready-meal manufacturer Tasty Bite's (IND:TASTYBITE) share price has more than doubled in five years, and white goods company Whirlpool of India (IND:WHIRLPOOL) and domestic airline SpiceJet (BOM: 500285) have seen their share prices increase more than 40 per cent. Over five years, the fund has returned 99 per cent, versus MSCI India index’s 87 per cent rise in sterling terms.

However, recent performance has not been so good due to some stock-specific issues and stylistic factors. Over one year the fund has lost 9 per cent, while MSCI India index has risen 11 per cent. Over two years the fund is down 17 per cent, during which time this index rose 9 per cent.

“We are excited about domestic consumption growth and will see this in India for many years to come," says Mr Vazirani. "Some 85 per cent of the revenue from our stocks is domestic, versus 66 per cent for MSCI India index. We want to be more focused on the domestic economy than exporters. But this has caused us some problems over the past year. The dollar got stronger and the Indian rupee weakened, making Indian exports cheaper and more appealing. If you were not in exporting companies you suffered.”

Meanwhile, Jupiter India's largest holding, Hindustan Petroleum (IND:HINDPETRO), has had significant problems. This state-backed petrol company's share price plummeted following a botched privatisation, and when India's finance minister said it should cut retail petrol prices when the oil price was rising. Smaller shareholders became concerned that there would be state intervention.

“Hindustan Petroleum is still growing,” argues Mr Vazirani. “Petrol consumption is growing by 12 per cent a year and the company has 15,000 petrol stations, many refineries and a large pipeline network. It has valuable businesses. People sold off this company because they thought the retailing arm was susceptible to government intervention, but in the past nine months this part of the company has made more profits than ever before. Hindustan Petroleum is trading on a six times price/earnings basis and 6 per cent dividend yield, so it’s pretty cheap.”

The fund's allocation to smaller companies not included in its benchmark, MSCI India, has also been detrimental to its performance. This is partly because domestic investors have favoured larger companies, pushing up their share prices more than those of smaller companies.

But Mr Vazirani says these larger companies are not good value. “The portfolio’s stocks are significantly cheaper than the benchmark on a price-to-equity, price-to-book and price-to-cash-flow basis with a higher dividend yield and higher earnings per share growth," he argues. "People have sold off stocks that don't meet their very narrow criteria. Last year there was a love affair with growth at any price, but that trade is going to unwind.”

 

Jupiter India (GB00BD08NQ14)

PRICE129.01p*SET-UP DATE29/02/2008
IA SECTORSpecialistMANAGER START DATE29/02/2009
FUND TYPE Unit trustONGOING CHARGE0.69%
FUND SIZE£754mYIELD-
No OF HOLDINGS78MORE DETAILSjupiteram.com/UK

Source: Jupiter Asset Management as at 28/02/19, *Monrningstar as at 9/04/19

 

Performance

Fund/benchmark1-year total return (%)3-year cumulative total return (%)5-year cumulative total return (%)
Jupiter India-8.8627.1698.92
MSCI India index11.4853.9787.23
MSCI Emerging Markets index3.5954.4255.42

Source: FE Analytics as at 8/04/19

 

Top 10 holdings as at 28/02/19 (%)

Hindustan Petroleum6.0
Biocon5.8
Godfrey Phillips India5.0
Interglobe Aviation3.4
Gillette India3.2
Fortis Healthcare3.1
Bharat Petroleum3.0
ICICI Bank3.0
HDFC Bank3.0
State Bank of India2.9

Source: Jupiter Asset Management

 

Sector breakdown as at 28/02/19 (%)

Consumer goods23.1
Financials22.8
Healthcare15.6
Oil & gas11.1
Consumer services8.4
Industrials7.0
Technology4.4
Utilities3.0
Basic materials1.0
Cash3.6

Source: Jupiter Asset Management