JP Morgan Indian Investment Trust - Still secure

Last month, the world was rocked by shocking scenes from Mumbai, India’s capital, as terrorist attacks claimed 164 lives. Already feeling the squeeze of the contraction in the West, such an atrocity did little to alleviate the nation’s economic slowdown. Despite this, in our view, India still represents a one way bet and JP Morgan Investment Trust (LSE, JII) represents sound exposure.

Like any other nation, India is experiencing several headwinds right now.  As far as the economy is concerned, fresh concerns centre over the possible detrimental effects on foreign investment as well as exports that the attack may bring. 

However, we concur with Prime Minister Manmohan Singh’s optimism about the country’s robust economic prospects. The prospective level of growth in the region differs depending on who you listen to. The International Monetary Fund (IMF) predicts growth of 6.3 percent for 2009 whilst the World Bank suggests 5.8 percent. It is important to remember though that this is growth nonetheless.

India continues to cope with the recession in the West admirably. Having seen GDP grow at an average of 9 percent for the last 4 years, the drop to 7.6 percent in last year’s third quarter is far from ideal but is also not apocalyptic.

There is not so much a decoupling between the US & Europe and ‘Chindia’ and co, but a significant loosening. As the clouds in the West show no signs of shifting, we anticipate a flight to the emerging world and investments such as JP Morgan India Investment Trust should prosper.

Turning to the underlying holdings of the trust, on the surface its overweight exposure to financials looks risky. However due to the conservative nature of the nations bankers and effective management, this is far from the case.  And with Energy exposure a close second we believe the trust is weighted in all the right places.   

Our outlook for the Indian economy remains bright thanks in main to a reform driven government. In the short term, fiscal stimuli have been all the rage of late and India are not to be left out of the party. Last month, the Indian government announced its first solid expenditure plan since the start of the global crisis.

In the long term, the country’s population is expected to expand from 1.1 to 1.7 billion by 2050 and it is imperative that the government boost public spending on infrastructure, including roads, power and ports to pave the way for future growth. Encouragingly, the government have budgeted US$500 billion to such projects over the next 10 years.

A key feature of India is its young population. The young have insatiable appetites for work and the ensuing rising incomes are leading the way for a huge increase in spending. The ‘save’ mentality is being replaced by the ‘spend’ mentality and this bodes well for economic activity.

In our view the Indian growth story has plenty left in the tank. Despite the protracted boom and the burgeoning middle class the World Bank estimates around 42 percent of the population (@456 million people) are living below the poverty line of US$1.25 per day.  Plenty of catching up to do then; and a long time before the country’s growth saturates.