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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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india market outlook
India Market Outlook
  • Recent Correction
  • The Longer Term Outlook
  • JF India Fund
the recent correction
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
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
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
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
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 outlook9
India Market Outlook
  • Recent Correction
  • The Longer Term Outlook
  • JF India Fund
india still has plenty of growth
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
GDP growth is accelerating but with lower volatility

Source: Central Statistical Organization, India

indian export dependence
Indian export dependence

% of GDP Total Exports To China To EU To Japan To US

APR Region Average 49.7 7.1 7.7 5.3 8.5

Malaysia 107.9 9.8 14.4 10.8 22.7

Singapore* 106.6 12.4 17.4 6.8 12.7

Thailand 62.4 6.5 8.7 8.8 10.2

Taiwan 54.7 14.9 7.9 4.6 9.2

Philippines 41.8 5.4 6.8 7.4 8.0

Korea 36.1 8.5 5.2 3.1 5.4

China 34.2 n/a 7.7 4.2 8.3

Indonesia 30.5 2.5 3.8 6.5 3.7

India 13.2 1.0 3.0 0.3 2.2

Hong Kong* 9.9 3.2 1.6 0.3 2.7

* Only includes domestic exports

Source: CEIC, Merrill Lynch calculations

… India’s growth is led by domestic factors

efficient conversion of economic growth into earnings
Efficient conversion of economic growth into earnings

Source: CEIC, RBI, Morgan Stanley Research

structural change reform and infrastructure investment
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
mn

90

80

70

60

50

40

30

20

10

0

FY99

FY00

FY01

FY02

FY03

FY04

FY05

FY06

An example of reform success and growth

Number of cellular subscribers

New Telecom Policy

Source: Kotak Securities

planned infrastructure investments a big leap
Planned Infrastructure Investments – A big leap

US$bn FY00-03 FY04-07

Airports 1.3 2.4

Irrigation 11.8 28.1

Ports 0.9 3.5

Power 16.4 65.7

Railways 9.0 10.5

Roads 13.9 18.2

Telecom 14.7 15.8

Tourism 0.1 0.6

Urban infrastructure 11.5 26.4

Total 79.6 171.3

Source: Crisil

household balance sheet a long term case for equities
Household balance sheet – A long term case for equities

As at F2005 F1994 Change F05 - 94

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

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

Financial Assets

Currency 72.9 5.9% 23.5 7.1% 49.4 310.0%

Deposits 311.8 25.3% 84.6 25.5% 227.2 368.5%

Contractual savings 217.2 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%

Equities 37.4 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 Assets 611.7 49.6% 161.4 48.7% 450.3 379.0%

Total Assets 1,232.4 100.0% 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
China

India

China

India

India on a China time line

Per Capita GDP

Per Capita Electricity Consumption

US$

Kwh

Source: Morgan Stanley

Source: Morgan Stanley

…India lags China in most measures of development

india on a china time line19
China

India

China

India

India on a China time line

Car Population

Telephone Connections (incl. Cellular Subs)

‘000s

‘000s

Source: Morgan Stanley

Source: Morgan Stanley

india has exceptional demographic potential
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 outlook21
India Market Outlook
  • Recent Correction
  • The Longer Term Outlook
  • JF India Fund
jf india fund
JF India Fund

Performance

Sector Breakdown (%)

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

Cumulative Performance (%)

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

Holding Sector %

1 Bharat Heavy Electricals Electrical Equipment 7.7

2 Infosys Technologies IT Services 6.7

3 Associated Cement Construction Materials 5.9

4 Larsen & Toubro Construction & Engineering 5.4

5 ITC Ltd Tobacco 4.2

6 Mahindra & Mahindra Automobiles 4.0

7 Bharti Airtel Wireless Telecommunication Services 4.0

8 Tata Motors Machinery 3.9

9 Satyam Computer Services IT Services 3.9

10 Gujarat Ambuja Cements Construction Materials 3.3

Since

Inception 3Mths 6Mths 1Yr 3Yrs 5Yrs (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

Outperformance -4.3 -2.3 +1.5 +99.3 +71.6 +696.0

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

As of 30/5/06

sector industry breakdown
Sector / Industry Breakdown

Fund Benchmark Difference

% % %

Industrials 19.15 9.67 9.47

Information Technology 16.37 19.85 -3.48

Financials 11.48 15.94 -4.46

Materials 9.40 8.38 1.02

Utilities 8.31 2.48 5.83

Consumer Discretionary 7.59 7.72 -0.13

Telecommunication Services 6.31 4.83 1.48

Consumer Staples 6.11 9.38 -3.27

Health Care 5.64 5.69 -0.05

Energy 3.59 16.06 -12.47

Derivatives 3.17 0.00 3.17

Cash 2.89 0.00 2.89

Data as of 30/4/06

top 15 active bets
Top 15 Active Bets

Fund Benchmark Difference

% % %

Associated Cement 4.98 0.76 4.22

Bharti Airtel 4.14 0.00 4.14

NTPC Ltd 3.77 0.00 3.77

Bharat Heavy Electricals 6.23 2.49 3.75

Mahindra & Mahindra 3.89 1.15 2.74

Larsen & Toubro 5.08 2.47 2.61

Gujarat Ambuja Cements 3.23 1.05 2.18

Hutchison Telecommunications 2.18 0.00 2.18

Tata Power 2.19 0.49 1.70

S&P CNX Nifty Idx Op Wts(2)2/07(gs) 1.61 0.00 1.61

S&P CNX Nifty Idx Op Wts(3)2/07(gs) 1.56 0.00 1.56

Satyam Computer Serv 4.45 3.10 1.35

Reliance Energy 2.00 0.67 1.33

Wipro Ltd 2.94 1.92 1.03

Kotak Mahindra Bank 1.53 0.53 1.00

Data as of 30/4/06

top 15 negative bets
Top 15 Negative Bets

Fund Benchmark Difference

% % %

Reliance Ind 3.59 11.44 -7.85

Icici Bank 1.44 6.38 -4.94

Infosys Technologies 7.39 11.59 -4.21

Reliance Communica 0.00 3.68 -3.68

Oil & Natural Gas 0.00 3.66 -3.66

Hindustan Lever 1.47 4.04 -2.58

Tata Consultancy S 0.00 2.27 -2.27

Hindalco Inds 0.00 1.88 -1.88

Housing Development Fin 2.44 4.09 -1.66

Tata Steel Ltd 0.00 1.52 -1.52

Grasim Industries 0.00 1.52 -1.52

Gail India Ltd 0.00 1.33 -1.33

Ranbaxy Labs 0.00 1.24 -1.24

Hero Honda Motors 0.00 1.22 -1.22

Maruti Udyog 0.00 1.15 -1.15

Data as of 30/4/06

why jf
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
Our India Funds

Source: JFAM

jf india funds and performance
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
The JF India Team

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

[email protected], Direct Tel: 852 2800 2821

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

[email protected], Direct Tel: 852 2800 2831

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

[email protected], Direct Tel: 852 2800 2822

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

[email protected], Direct Tel: 852 2800 7990

slide31
JPMorgan Asset Management

Contact:

Sherene Ban, Client Portfolio Manager – Far East Equities

+44 (20) 7742 4419

[email protected]

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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