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JF India Fund June 2006 India Market Outlook Recent Correction The Longer Term Outlook JF India Fund The Recent Correction Not isolated to India, but part of a wider global phenomenon India hit hard as risk appetite diminished, India had benefited the most from rising risk

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JF India Fund June 2006

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JF India FundJune 2006

India Market Outlook

  • Recent Correction

  • The Longer Term Outlook

  • JF India Fund

The Recent Correction

  • Not isolated to India, but part of a wider global phenomenon

  • India hit hard as risk appetite diminished, India had benefited the most from rising risk

  • Economic and corporate fundamentals unchanged, in fact, marginally improved

  • Recent overbought position now corrected, valuations more comfortable

Flow of Funds in India

Net FIIs Inv (US$m)

Source: SEBI

Net MFs (US$m)

Source: SEBI

Date: 20 June 2006

Trend in FY07 Sensex EPS growth

Source: CLSA

As of May 2006

…earnings constantly being revised upwards

Valuations leave little room for error, but justified given the growth

P/E for MSCI India

P/B for MSCI India

Source: Kotak Institutional Equities

As of May 2006

Source: Kotak Institutional Equities

…valuations looking more reasonable after correction

Current account deficit a short-term concern

% of GDP

* IMF Forecasts

Source: CEIC, Merrill Lynch calculations

… one of the few countries in Asia to run a deficit

India Market Outlook

  • Recent Correction

  • The Longer Term Outlook

  • JF India Fund

India still has plenty of growth

  • Long term prospects are very attractive

    • One of the fastest growing economies in the world

    • Efficient conversion of economic growth into earnings

    • Infrastructure, productivity and competitiveness

    • Human and intellectual capital – secular opportunity

    • Abundance of high quality, well managed companies

    • Domestic savings pool is underweight equities

    • Valuations are reasonable

  • Near-term performance could be impacted by…

    • Volatility in foreign flows and risk appetite

    • Bottoming out of interest rates

GDP growth is accelerating but with lower volatility

Source: Central Statistical Organization, India

Indian export dependence

% of GDPTotal ExportsTo ChinaTo EUTo JapanTo US

APR Region Average49.










Hong Kong*

* Only includes domestic exports

Source: CEIC, Merrill Lynch calculations

… India’s growth is led by domestic factors

Efficient conversion of economic growth into earnings

Source: CEIC, RBI, Morgan Stanley Research

Structural change, reform and infrastructure investment

  • Financial services: Critical new legislation, consolidation, innovation

  • Power: Delicensing, private participation and competition and subsidy dismantling are essential to counter the 8% power deficit

  • Roads: Between 1950-2000, India added 11km of new roads per annum; India is now adding 11km of new roads per DAY

  • Telecom: In a year, India adds the population of Spain to cellular subs

  • Active capital markets will supply attractive new opportunities in real estate, infrastructure, insurance, etc.




















An example of reform success and growth

Number of cellular subscribers

New Telecom Policy

Source: Kotak Securities

Planned Infrastructure Investments – A big leap










Urban infrastructure11.526.4


Source: Crisil

Household balance sheet – A long term case for equities

As atF2005F1994ChangeF05 - 94

At Cost$ bn%*$ bn%*in $ bnin %

Physical Assets (incl. gold and property)620.7 50.4%170.1 51.3%450.6 364.9%

Financial Assets

Currency72.9 5.9%23.5 7.1%49.4 310.0%

Deposits311.8 25.3%84.6 25.5%227.2 368.5%

Contractual savings217.2 17.6%53.5 16.1%163.7 405.9%

Claims on the Govt.110.9 9.0%18.2 5.5%92.7 610.0%

Equities37.4 3.0%22.9 6.9%14.4 162.9%

Financial Liabilities

Trade Debt (Net)(2.8)-0.2%(0.3)-0.1%(2.5)886.9%

Financial Liabilities(135.8)-11.0%(41.1)-12.4%(94.7)330.5%

Net Financial Assets611.7 49.6%161.4 48.7%450.3 379.0%

Total Assets1,232.4 100.0%331.5 100.0%900.9 371.8%

* % represents share in total balance sheet, US $ value measured at prevalent exchange rate.

Source: Reserve Bank of India, Morgan Stanley Research





India on a China time line

Per Capita GDP

Per Capita Electricity Consumption



Source: Morgan Stanley

Source: Morgan Stanley

…India lags China in most measures of development





India on a China time line

Car Population

Telephone Connections (incl. Cellular Subs)



Source: Morgan Stanley

Source: Morgan Stanley

India has exceptional demographic potential

China Demographic Profile - 2010

India Demographic Profile - 2010

Source: Statistical Outline of India; China Statistical Yearbook

Source: Asian Demographics

…positive for consumption outlook

India Market Outlook

  • Recent Correction

  • The Longer Term Outlook

  • JF India Fund

JF India Fund


Sector Breakdown (%)

Offer to offer prices, gross reinvestment, calculation: indexed in USD.

Cumulative Performance (%)

Top 10 Holdings (%) (As of 28/4/06)

Holding Sector %

1Bharat Heavy Electricals Electrical Equipment7.7

2Infosys Technologies IT Services6.7

3Associated Cement Construction Materials5.9

4Larsen & Toubro Construction & Engineering5.4

5ITC Ltd Tobacco4.2

6Mahindra & Mahindra Automobiles4.0

7Bharti Airtel Wireless Telecommunication Services4.0

8Tata Motors Machinery3.9

9Satyam Computer Services IT Services3.9

10Gujarat Ambuja Cements Construction Materials3.3


Inception3Mths6Mths1Yr 3Yrs5Yrs(23/11/89)

JF India-3.3+19.8+53.8+336.0+285.0+1,118.9

MSCI India Net+1.0+22.1+52.3+236.7+213.4+422.9


Source: JFAM/Thomson Datastream (NAV to NAV in US$ with income reinvested).

As of 30/5/06

Sector / Industry Breakdown




Information Technology16.3719.85-3.48




Consumer Discretionary7.597.72-0.13

Telecommunication Services6.314.831.48

Consumer Staples6.119.38-3.27

Health Care5.645.69-0.05




Data as of 30/4/06

Top 15 Active Bets



Associated Cement 4.980.764.22

Bharti Airtel

NTPC Ltd3.770.003.77

Bharat Heavy Electricals 6.232.493.75

Mahindra & Mahindra 3.891.152.74

Larsen & Toubro 5.082.472.61

Gujarat Ambuja Cements

Hutchison Telecommunications2.180.002.18

Tata Power 2.190.491.70

S&P CNX Nifty Idx Op Wts(2)2/07(gs)1.610.001.61

S&P CNX Nifty Idx Op Wts(3)2/07(gs)1.560.001.56

Satyam Computer Serv 4.453.101.35

Reliance Energy 2.000.671.33

Wipro Ltd 2.941.921.03

Kotak Mahindra Bank 1.530.531.00

Data as of 30/4/06

Top 15 Negative Bets



Reliance Ind 3.5911.44-7.85

Icici Bank 1.446.38-4.94

Infosys Technologies 7.3911.59-4.21

Reliance Communica0.003.68-3.68

Oil & Natural Gas0.003.66-3.66

Hindustan Lever 1.474.04-2.58

Tata Consultancy S0.002.27-2.27

Hindalco Inds0.001.88-1.88

Housing Development Fin 2.444.09-1.66

Tata Steel Ltd0.001.52-1.52

Grasim Industries0.001.52-1.52

Gail India Ltd0.001.33-1.33

Ranbaxy Labs0.001.24-1.24

Hero Honda Motors0.001.22-1.22

Maruti Udyog0.001.15-1.15

Data as of 30/4/06

Why JF?

  • Performance across all time periods is well ahead of the benchmark and is top quartile. We can continue to generate this outperformance given the suitability of our model to the Indian opportunity

  • Our team is cohesive, experienced and uniquely qualified. We have a "one team, two location" approach. All funds are managed synchronously and collectively

  • Our annual run-rate of company visits and telecons is over 500 and rising. This interaction is the core of our stock discovery / selection process and supports our concentrated portfolio construction

  • We launched the first India country fund and are one of the largest portfolio investors. We are increasing our headcount and AUM and product range sensibly. Our commitment to India is irreversible

  • The volatility of JPMorgan Funds -JF India over 3 years was 24.87%, which is less than the benchmark of 25.42% and yet outperforming the market up to 72%. (As at end May 2006)

Our India Funds

Source: JFAM

JF India Funds and Performance

As at end May 2006

* Since inception 31Jan2005

Source: JFAM, MSCI, Thomson Datastream

Past performance is not indicative of future performance.

The JF India Team

Edward Pulling, Investment Manager, 11 years of India-related experience

Edward.l.pulling@jfam.com, Direct Tel: 852 2800 2821

Rukhshad Shroff, Investment Manager, 14 years of India-related experience

Rukhshad.shroff@jfam.com, Direct Tel: 852 2800 2831

Rajendra Nair, Investment Manager, 7 years of India-related experience

Rajendra.nair@jfam.com, Direct Tel: 852 2800 2822

Johnny Wong, Dealer, 9 years of India-related experience

Johnny.kp.wong@jfam.com, Direct Tel: 852 2800 7990


JPMorgan Asset Management


Sherene Ban, Client Portfolio Manager – Far East Equities

+44 (20) 7742 4419


Any forecasts or opinions expressed are JPMorgan’s own at the date of this document and may be subject to change. The value of investments and the income from them may fluctuate and your investment is not guaranteed and investors may not get back the full amount invested. Past performance is not a guide to future performance. Exchange rates may cause the value of underlying overseas investments to go down or up. Investments in smaller companies may involve a higher degree of risk as they are usually more sensitive to market movements. Investments in emerging markets may be more volatile than other markets and the risk to your capital is therefore greater. Also, the economic and political situations may be more volatile than in established economies and these may adversely influence the value of investments made. Telephone lines are recorded and may be monitored for security and training purposes

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