- The Indian stock market and the fund have fallen in value this year
- A focus on small and medium-sized companies hasn’t helped the fund
- We think the fund still offers excellent long-term potential
There’s lots of change going on in India at the moment and we think this fund has the potential to benefit over the long run. It’s been a tough year for the Indian stock market though and it’s affected funds investing there, including Jupiter India.
The recent volatility isn’t entirely unusual for a fund investing in a single emerging country. These markets are at an early stage of their development, so they’re more likely to suffer from political, economic and regulatory changes than developed markets.
Periods of performance like this can be painful for investors though, and it’s something we don’t overlook.
Active fund managers all go through tougher periods sometimes. Avinash Vazirani has a lot of experience investing in these markets and his stock-picking record gives us the confidence to support the fund on a long-term basis. It features on the Wealth 150+ list of our favourite funds.
This type of fund should only make up a smaller portion of an investment portfolio. They should only be held if you can accept the greater risks and volatility that come with investing in emerging markets.
What’s happened this year?
The broad Indian stock market has fallen 12.3% so far this year (to the end of October 2018). Some wider economic factors have weighed on its performance.
Higher oil prices have had an impact because India imports 80% of the oil it needs. A stronger US dollar and weaker Indian rupee also haven’t helped. This makes imports into India even more expensive.
The shares of small and medium-sized companies have had an even tougher time. This is partly because the Indian securities regulator introduced some trading restrictions on the shares of smaller firms.
Jupiter India has done worse than the broader market this year, mainly because it invests more in small and medium-sized companies than a lot of other Indian funds. We still think this area of the market offers a lot of opportunity for growth over the long run. Smaller businesses are often overlooked by many investors, so it gives the manager the chance to spot opportunities missed by others. It’s a higher-risk place to invest though.
The fund also doesn’t invest much in IT services companies. They performed well this year and the fund missed out. They were boosted by the strength of overseas currencies, because they sell a lot of their services overseas. But Vazirani thinks these IT companies won’t grow as much in future. More businesses now use cloud storage, so they don’t have as much need for the services on offer.
Some other individual investments also hurt the fund. Hindustan Petroleum, Bharat Petroleum and Indian Oil all fell in value because of the increased cost of importing oil. And they haven’t been able to offset this by charging customers more because of government intervention.
Vazirani thinks most investors have overreacted to this shorter-term issue. Hindustan Petroleum, for example, only makes 20% of its money from fuel retailing. But the rest comes from other areas like oil refining, pipelines and lubricants. It’s still one of the fund’s biggest investments.
It’s not all bad news. Some companies have performed well this year, including Eros International, which makes Indian films. Its app, Eros Now, is becoming more successful and now has over 10 million paid users. It has plenty of experience in creating content that appeals specifically to Indian audiences, which helps differentiate it from overseas competition.
We think there’s a lot of potential stored up in India. The government has introduced plenty of reform in recent years, and this could present new and exciting opportunities for businesses to grow.
For example, welfare payments have previously ended up in the hands of the wrong people. But now a lot more people have access to their own bank account, which could help prevent that. It could also leave people with more to spend on other financial products and services, and this could benefit financial companies, like banks and insurers.
The growing use of the internet is another big theme. India is now the number one country in the world for mobile data consumption, with more than 330 million smartphones in the country. This could have a big impact on how people spend. Vazirani thinks this could benefit a wide range of industries including domestic air travel and clothing.
He has a long and successful record investing in India and since running this fund in February 2008 it’s grown 115.4%* compared with 83.9% for the FTSE India Index. This shouldn’t be seen as a guide to future performance though, and all investments can fall as well as rise in value, so you could get back less than you invest.
We still think investing in India offers the opportunity for significant growth, but this will be over many years rather than months.
|Annual percentage growth|
| Oct 13 -
| Oct 14 -
| Oct 15 -
| Oct 16 -
| Oct 17 -
Past performance is not a guide to the future. Source: *Lipper IM to 31/10/2018