JII Jpmorgan Indian Investment Trust Plc

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN INDIAN INVESTMENT TRUST PLC

UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 31ST MARCH 2024

Legal Entity Identifier: 549300OHW8R1C2WBYK02

Information disclosed in accordance with DTR 4.2.2

CHAIRMAN'S STATEMENT

I became Chairman of the Company following the conclusion of the AGM in February 2024, having joined the Board in 2020. I took over from Rosemary Morgan who had been a Director of the Company since 2013 and Chairman since 2020. I would like to take this opportunity on behalf of the Board to thank Rosemary for her leadership and wise counsel in her time first as a Director and then as Chairman of the Company.

Performance

During the six months period ended 31st March 2024, it has been pleasing to see the MSCI India Index increasing by 14.7% and outperforming both the MSCI Emerging Markets Index and the MSCI China Index. This has come about notwithstanding the ongoing worldwide geopolitical conflicts and tensions. The Company produced a total return on net assets of 6.2% in the period although this, disappointingly, underperformed its benchmark by 8.5%. In broad terms this underperformance is attributable to lower quality sectors of the market doing well, whereas your Portfolio Managers have favoured higher quality corporate names, a number of whose share prices have disappointed. In addition, some areas of the market are now experiencing high valuations which have precluded your Portfolio Managers from participating to any meaningful extent. In their report on pages 13 to 17 of the Half Year Report, the Portfolio Managers provide a detailed and frank commentary on this performance. They also discuss portfolio activity and their outlook for the Indian market.

Discount and Share Repurchases

The Company's discount to NAV at which the Company's shares trade marginally widened from 19.3% at the previous financial year end to 19.6% at the half year end.

The Board constantly weighs the merits of buying back shares, in line with the Company's share buyback policy, to manage the absolute level and volatility of the discount. The Company repurchased 2,012,975 shares into Treasury during the reporting period, equating to 2% of the Company's share capital. Since the half year end, a further 827,781 shares have been bought back for holding in Treasury.

Continuation Vote and Conditional Tender Offer

As stipulated by the Company's Articles of Association, at the AGM held on 13th February 2024, the resolution to continue the Company as an investment trust for a further five years was put to shareholders and duly passed with 96.2% of votes cast in favour.

Shareholders are reminded that a tender offer will be made to shareholders for up to 25% of the Company's outstanding share capital (excluding shares held in Treasury) at NAV less costs if, over the five years from 1st October 2020, the Company's NAV total return in sterling on a cum income basis does not exceed the total return of the benchmark index plus 0.5% per annum over the five-year period on a cumulative basis. If the tender offer is triggered, it will be subject to shareholder approval at the relevant time.

The Company is required to pay capital gains tax on long-term and short-term capital gains at the headline current rates of 10% and 15%, respectively, plus associated surcharges of approximately 1-1.5%, which the Company's benchmark does not take into account. Therefore, for the avoidance of doubt, in order to ensure that the terms of the conditional tender offer correctly reflect the Investment Manager's performance in calculating whether the tender offer has been triggered, the NAV per share will be adjusted to add back all such taxes paid or accrued. For the benefit of the Company's shareholders, the Company publishes on a monthly basis through a Regulatory Information Service platform the Company's unaudited adjusted NAV per share. The NAV performance since 1st October 2020 without the impact of capital gains tax stood at 71% as at 31st March 2024, compared to 84% for the Benchmark.

Stay Informed

The Company delivers email updates on its progress with regular news and views, as well as the latest performance. If you have not already signed up to receive these communications and you wish to do so you can opt in via https://tinyurl.com/d95jkrzx or by scanning the QR code in the Half Year Report. Shareholders are also encouraged to visit the Company's website at www.jpmindian.co.uk which contains detailed information on the Company's performance, monthly commentaries as well as interviews and recordings with the Portfolio Managers.

Board

As announced in February 2024, I am pleased to report that following an external recruitment search process, Charlotta Ginman will be appointed to the Board with effect from 1st August 2024. Charlotta is a qualified Chartered Accountant and an experienced Non-executive Director. My fellow Directors and I are delighted that Charlotta has agreed to join the Board and look forward to welcoming her in the coming months. It is intended that Charlotta will take on the Chairmanship of the Audit and Risk Committee from Jasper Judd who is retiring at the conclusion of the Company's AGM in 2025.

Furthermore, at the conclusion of the Company's AGM held on 13th February 2024, Vanessa Donegan took over the role of Senior Independent Director from me.

Portfolio Manager Personnel Changes

The Board was informed that Ayaz Ebrahim, one of the Company's Portfolio Managers, would be stepping down as Portfolio Manager to the Company with effect from 1st April 2024 due to taking up a new position within JPMorgan Asset Management as CEO of JPMAM Singapore and South East Asia. Amit Mehta and Sandip Patodia, who have been the Company's joint Portfolio Managers since 30th September 2022, will continue to manage the assets of the Company.

On behalf of the Board, I would like to express our sincere gratitude to Ayaz for his contribution to the management of the Company's portfolio.

Outlook

With the Indian general election concluded, the largest electorate in the world seems to have voted for a continuation of the economic policies that have brought to so many of them an improvement in their living standards and taken India to the position of the fifth largest economy in the world. Nonetheless, seasoned investors will know that there is seldom a close correlation between a country's headline economic growth and the performance of its stock market. Successful investors need to identify companies that are well positioned and sensibly managed to take advantage of the opportunities on offer in India. This requires a disciplined investment process, one that analyses the fundamentals of the corporate to assess its prospects and yet is patient enough to invest for a sustainable and reasonable return over the medium and long term.

Whilst your Portfolio Managers have succeeded in providing a positive return for shareholders in recent years, they have also been quite open in explaining the reasons for the underperformance of the portfolio in comparison to the Indian market as a whole. In particular, given the recent strong gains made in certain parts of the market, they have not wanted to overpay for any of their positions. Whilst this focus on valuations is to be welcomed, it is still the case that on behalf of you, the shareholder, the Board will continue to assess the success or otherwise of the Portfolio Managers' investment process in realising the many positive opportunities of investing in the Indian stock market.

Jeremy Whitley

Chairman                                                                                                                                         6th June 2024

INVESTMENT MANAGER'S REPORT

The six months in review

During the six months to end March 2024, the MSCI India Index climbed 14.7%, compared to MSCI Emerging Markets Index which rose 6.6%, the MSCI China Index, which fell 9.5% and the S&P 500, which jumped 19.4%. The MSCI India mid cap and small cap indices climbed 21.0% and 13.0% respectively during the same period. These latest results extend India's track record of outperformance against both China and emerging markets more generally - the Indian market has delivered 13.0% annualised returns over both five- and ten-year periods, handsomely outpacing the Chinese and Emerging Markets indices. Most of the market's gains over the past six months were led by cyclical and lower quality sectors. Real estate, oil and gas, power and state-owned companies were the largest contributors, while fast moving consumer goods and private sector banks were the main underperformers.

Market sentiment was aided by the ruling party's strong showing in state elections. This cemented expectations of victory in the national elections. The market also welcomed the interim budget, which focused on fiscal consolidation rather than distributing pre-election freebies.

India continues to witness strong economic growth, mainly driven by government and household capex. Q423 GDP growth surprised on the upside, rising 8.4%. Growth was supported by investment, while private consumption remained muted, partly owing to weakness in employment in IT services and rural softness. Tax revenues remain buoyant, led by strong growth in direct tax collections. The current account deficit to GDP ratio was steady at 1.2% during Q423.

Average inflation at 5.3% during the five months to February 2024 was within the Central Bank's target 4-6% range, but nonetheless, the central bank pulled liquidity from the system and remains hawkish. The RBI governor has been emphasising the need to restrict inflation to around 4%, on the low side of the Bank's target.

The review period saw increased action by the financial regulator on several fronts:

(1)     Rules governing personal loans and credit cards were tightened by raising capital requirements for loans to non-bank financial companies (NBFCs) in November 2023.

(2)     Mutual funds were advised to limit flows in mid-cap and small-cap funds on fears that financial markets were overheating; and

(3)     Mutual funds were asked to undergo stress testing to determine the liquidity of their holdings.

The central bank also took regulatory actions against three institutions:

(1)     IIFL Finance whose gold loans were banned.

(2)     JM Finance was banned from financing shares or debentures; and

(3)     Paytm Payments Bank was prohibited from taking deposits.

In our view, all these actions, combined with the Central Bank's relatively hawkish stance, are positive for financial stability.

Performance review

Over the six-month period to 31st March 2024, your Company delivered an absolute NAV performance of 6.2%. This however amounted to an underperformance of 8.5% vs the benchmark return of 14.7%. The extent of this underperformance is disappointing. It is accounted for by three main factors:

1.       Companies exposed to the ongoing capex and real estate upcycle and lower quality cyclicals outperformed during the period. On the other hand, our biggest sector exposures - financials, IT, and consumer staples - underperformed. Since taking over as Portfolio Managers in October 2022, we have been adding names with greater exposure to the domestic economy, higher growth, and small and mid-cap names. However, our efforts have been hindered to some extent by demanding valuations.

2.       Around 30% of the underperformance was attributable to our three largest single stock detractors, namely HDFC Bank, WNS and Hindustan Unilever. HDFC Bank experienced tepid deposit collection due to liquidity tightening by the Central Bank. This impacted HDFC disproportionately because of its recent merger with the housing financing business HDFC Limited, and the need for deposits to replace wholesale funding on which HDFC was dependent. This issue is likely to be transitory for HDFC, but the impact on the Company during the period was significant, as HDFC Bank was one of our highest overweights. WNS is an IT services company which was impacted by deteriorating sentiment towards the business process outsourcing (BPO) sector, on expectations that Generative AI may have a negative effect on their business model. The sell-off in WNS was further exacerbated by a one-off client loss. Finally, Hindustan Unilever underperformed during the period due to a slowdown in consumer spending and increased competition from smaller unorganised players whose input costs have started to moderate.

3.       Our decision not to hold high growth names like Zomato, an online food delivery and quick commerce business, and Trent, which operates fashion retail stores, detracted, as they performed strongly during the period. High starting valuations have precluded us from adding exposure, even though these names look attractive on a fundamental basis.

We acknowledge that the Company lacked sufficient exposure to higher growth and smaller-mid-cap names and was over-exposed to a few names which faced transitory issues. We would expect to claw back most of the relative performance lost over time, as the operational performance of our portfolio companies starts to improve.

Spotlight on stocks and portfolio activity

Before we talk about changes in the portfolio, a reminder of what the focus of the investment strategy is - invest in great businesses, run with the right mindset, and purchased at an attractive valuation. We think about our investments in that order, with a view to determining corporate quality, before considering the valuation. With this in mind, we made the following portfolio changes over the six-month period.

New initiations

Syngene - We initiated a position in one of India's largest integrated contract research & development and manufacturing organisation (CRDMO), given significant industry tailwinds, especially in the outsourcing of manufacturing of biologic drugs. The company is well positioned to deliver strong growth on the back of heavy investments it is making on the manufacturing front.

Delhivery - The largest independent logistics company in India by a factor of >2x with an innovative network design. It provides end-to-end logistics services for express and part truck load parcels and operates in a notoriously challenging and inefficient market, where scale is everything. Delhivery should continue to win market share and grow profits due to its focus on owning the lowest cost infrastructure, sharing the savings with its customers, and using a very efficient logistics networks for its clients.

Havells - The poster child for India's consumer electrical equipment sector. Havells is the only player in the industry to successfully transition from being a B2B focused supplier of cables, wires and switchgears, to becoming a diversified B2C focused business, with a presence in small appliances and now in large appliances via its acquisition of Lloyd in 2018. This acquisition represented a move into high-quality consumer durables, at an acceptable valuation, and we expect the move to generate value. The company's core business remains well positioned.

Bajaj Finance - India's fifth largest consumer lender and one of the largest non-bank financial companies. It is a well-run business that has delivered strong growth and shareholder value over the last ten years. Significant recent underperformance provided us with the opportunity to reduce our underweight. We funded this acquisition by reducing our position in Axis Bank.

Cera Sanitaryware - The country's largest supplier of sanitaryware. It is a high quality business with exposure to the domestic real-estate cycle and a long growth runway in a consolidated marketplace. The company also benefits from high barriers to entry. Cera is financially conservative with a prudent management team.

Complete sales

Power Grid - While demand for power undoubtedly remains strong, and investment in the sector will increase accordingly, Power Grid's valuations were not offering any margins of safety, which led us to exit the position.

Genpact - This BPO company has had a recent change in management and WNS and ExService, its competitors in the BPO sector, had derated so we consolidated our BPO exposure in these two names.

Reductions:

Infosys - Given that the slowdown in discretionary spending impacts Infosys disproportionately, we reduced our position in the company to moderate our exposure to the IT services sector and use it as a funding source.

Axis Bank - We reduced holdings in Axis Bank and consolidated our holdings in the banking sector. Axis has been one of the best performing private banks, although the quality of earnings has been relatively poor, so we continue to reduce our exposure.

Outlook

As we noted in the Company's latest Annual Report, the investment case for India has become more credible for a multitude of reasons. The catalysts for growth, discussed below, are multiplying in number, and increasing in scale.

Sustained growth

Since Narendra Modi's government took power in 2014, India's GDP has grown at a compound annual growth rate of around 7% per year, to $3.6 trillion, and the economy's global ranking by size has jumped from seventh to fifth. This has been to a large extent driven by several fundamental structural reforms including simplification of the tax regime and reduced tax burdens for those already in the system. In addition, a bankruptcy law has been introduced, the banking system has been cleaned up, and the real estate sector is now subject to regulation. All these reforms, coupled with stricter and more effective inflation targeting, favourable demographic trends, the build-up of digital and physical infrastructure, strong corporate balance sheets and political stability, are allowing the country to realise its potential to deliver a more sustainable growth.

Next year India is expected to become the fourth largest economy and the government has set a target to reach third place by 2028. This ambition stands out in a world where most large economies are expected to see growth rates decline in coming years.

Blue collar job creation

Of the three main components of GDP growth - labour, capital, and productivity - India has historically benefited from the contributions made by white collar labour and productivity increases driven by technology and outsourced services. However, over the past three decades, manufacturing's contribution to GDP has fallen from near 20% to 15% in FY2023, which is roughly half that of China.

More than 40% of India's workforce is still employed in agriculture, which compares with much lower levels in China (25%), Indonesia (29%) and the developed world (less than 5%). The poor performance of India's manufacturing sector has meant tepid blue collar job creation, which has prevented excess labour capacity in agriculture from being absorbed by the industrial sector. However, the government appears to have recognised the need to create an estimated 9-11m jobs in more capital-intensive sectors such as construction and manufacturing, to absorb both: (1) new labour coming into the market; and (2) migration from agriculture to more remunerative employment. Job creation of this scale is essential to ensure that India's demographic dividend pays off and boosts productivity accordingly.

Fixed capital formation

India is still in the early stages of diversifying its GDP to increase the proportion of fixed capital formation from sectors such as manufacturing and construction in its GDP mix. India's fixed capital formation as a percentage of GDP has started to trend up and this increase in capital intensity should translate into a further uptick in private capex. As such, we believe rising fixed capital expenditure formation will be a structural theme for India over the medium- to long-term. This will ensure more broad-based growth, as opposed to the current over-reliance on consumption and services.

Premium and discretionary consumption

Historically, India has largely been a bottom-of-the-pyramid consumption economy, with 225 million households earning less than $8,000 per annum. Forty million of these households live below the poverty line. Even as India has delivered strong GDP growth in the last ten years, GDP per capita has lagged. Its GDP per capita, currently at $2,379, has not improved dramatically and stands below countries like Bangladesh and Sri Lanka.

We expect this to change as investment-led growth not only accelerates wealth creation at the top of the pyramid, but also allows more households at the bottom of the pyramid to start consuming beyond subsistence living, thanks to more blue-collar job creation. This should drive consumption by both those at the bottom of the pyramid looking for basic 'value' products, and by top-of-the-pyramid households seeking 'premium' brands and discretionary goods in categories like clothing, eating out, jewellery and consumer durables. As an illustration of the potential impact of such a transformation, if the ratio of retail spending to total GDP rises from 25%, to match China's 40%, India's retail sector could expand from $650-700 billion at present, to $2 trillion over the next five years.

Risks to monitor

Although the macro picture and outlook for India is overwhelmingly positive, we are aware of inherent risks that emanate from several quarters: dependence on imports for oil/energy needs; low agricultural productivity; India's heavy reliance on global capital inflows to support growth; a dependence on global growth to support foreign demand for Indian goods and services; and complacency among policymakers.

Summary

Despite these risks, India's long-term macro-economic and political story is on a strong footing, and we believe the market offers one of the best prospects for equity investors globally over the medium to long term. The recent rally in markets, particularly in the small and mid-cap space, has, however, left valuations looking expensive across sectors in general. So, although we like a lot of companies from a fundamental perspective, we have been mindful not to overpay for names we would like to own. Nonetheless, over the past six months we have been able to strengthen the portfolio, moving up the quality curve to some extent, and we will use any opportunities generated by market pull-backs to continue down the same path, in the belief that it will provide greater exposure to India's growth story and lift performance over time.

For and on behalf of

JPMorgan Asset Management

Investment Manager

Amit Mehta

Sandip Patodia

Portfolio Managers                                                                                                                               6th June 2024

INTERIM MANAGEMENT REPORT

The Company is required to make the following disclosures in its Half Year Report.

Principal and Emerging Risks and Uncertainties

The principal and emerging risks facing the Company are substantially unchanged since the date of the Annual Report for the financial period ended 30th September 2023 and continue to be as set out in that report on pages 32 to 37. Risks faced by the Company include, but are not limited to, appropriateness and effective execution of strategy, ESG requirements from investors, legal and regulatory, share discount, cybercrime, broadscale external factors, taxation, market and geopolitical tensions, monetary and climate change.

Related Parties Transactions

During the first six months of the current financial year, no transactions with related parties have taken place which have materially affected the financial position or the performance of the Company during the period.

Going Concern

The Directors believe, having considered the Company's investment objective, risk management policies, capital management policies and procedures, nature of the portfolio and expenditure projections, that the Company has adequate resources, an appropriate financial structure and suitable management arrangements in place to continue in operational existence for the foreseeable future and more specifically, that there are no material uncertainties pertaining to the Company that would prevent its ability to continue in such operational existence for at least 12 months from the date of the approval of this half yearly financial report. For these reasons, they consider there is reasonable evidence to continue to adopt the going concern basis in preparing the accounts.

Directors' Responsibilities

The Board of Directors confirms that, to the best of its knowledge:

(i)      the condensed set of financial statements contained within the half yearly financial report has been prepared in accordance with International Accounting Standards 34 'Interim Financial Reporting' and gives a true and fair view of the state of affairs of the Company and of the assets, liabilities, financial position and net return of the Company, as at 31st March 2024, as required by the UK Listing Authority Disclosure and Transparency Rules 4.2.4R; and

(ii)     the interim management report includes a fair review of the information required by 4.2.7R and 4.2.8R of the UK Listing Authority Disclosure and Transparency Rules.

In order to provide these confirmations, and in preparing these financial statements, the Directors are required to:

•      select suitable accounting policies and then apply them consistently;

•      make judgements and accounting estimates that are reasonable and prudent;

•      state whether applicable UK-adopted international accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

•      prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business;

and the Directors confirm that they have done so.

For and on behalf of the Board

Jeremy Whitley

Chairman                                                                                                                                         6th June 2024

CONDENSED STATEMENT OF COMPREHENSIVE INCOME

The Company does not have any income or expense that is not included in the net profit/(loss) for the period. Accordingly the 'Net profit/(loss) for the period, is also the 'Total comprehensive income' for the period, as defined in IAS1 (revised).

All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the period.

The 'Total' column of this statement represents the Company's Statement of Comprehensive Income, prepared in accordance with IFRS.

The supplementary 'Revenue' and 'Capital' columns are prepared under guidance published by the Association of Investment Companies.

All the profit/(loss) and total comprehensive income is attributable to the equity shareholders of JPMorgan Indian Investment Trust plc, the Company.

CONDENSED STATEMENT OF CHANGES IN EQUITY

1           A reclassification adjustment to the 30th September 2022 capital reserves and revenue reserve figures, has been made in respect of £1,750,000 of withholding tax on Indian income from investments, which had been incorrectly credited against capital gains tax for the two years ended 30th September 2022. No adjustment has been made to the six month period ended 31st March 2023.

CONDENSED STATEMENT OF FINANCIAL POSITION

1           Included in other payables is an amount of £361,000 (31st March 2023: £228,000; 30th September 2023: £173,000) for repurchase of shares awaiting settlement.

2           A reclassification adjustment to the 30th September 2022 capital reserves and revenue reserve figures, has been made in respect of £1,750,000 of withholding tax on Indian income from investments, which had been incorrectly credited against capital gains tax for the two years ended 30th September 2022. No adjustment has been made to the six month period ended 31st March 2023.

CONDENSED STATEMENT OF CASH FLOWS

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

For the six months ended 31st March 2024

1.  Principal activity

The principal activity of the Company is that of an investment trust company within the meaning of Section 1158 of the Corporation Tax Act 2010.

2.  Financial Statements

The financial information for the six months ended 31st March 2024 and 2023 has not been audited or reviewed by the Company's auditors.

The financial information contained in these half year financial statements does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006.

The information for the Company for the year ended 30th September 2023 has been extracted from the latest published audited financial statements. Those financial statements have been delivered to the Registrar of Companies and included the report of the auditors which was unqualified and did not contain a statement under either Section 498(2) or 498(3) of the Companies Act 2006.

3.  Accounting policies

On 31st December 2020, IFRS as adopted by the European Union at that date was brought into UK law and became UK-adopted International Accounting Standards, with future changes being subject to endorsement by the UK Endorsement Board. The Company transitioned to UK-adopted International Accounting Standards in its company financial statements on 1st January 2021. This change constitutes a change in accounting framework. However, there is no impact on recognition, measurement or disclosure in the period reported as a result of the change in framework. The financial statements of the Company have been prepared in accordance with UK-adopted International Accounting Standards and with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards.

Where presentational guidance set out in the Statement of Recommended Practice (the 'SORP') for investment trusts issued by the Association of Investment Companies in July 2023 is consistent with the requirements of IFRS, the financial statements have been prepared on a basis compliant with the recommendations of the SORP.

The accounting policies applied to this condensed set of financial statements are consistent with those applied in the financial statements for the year ended 30th September 2023.

4.  Earnings/(loss) per share

5.  Net asset value per share

The Company will only re-issue shares held in Treasury at a premium and therefore these shares have no dilutive potential.   

6.  Disclosures regarding financial instruments measured at fair value

The disclosures required by the IFRS 13: 'Fair Value Measurement' are given below. The Company's financial instruments within the scope of IFRS 13 that are held at fair value comprise its investment portfolio.

The investments are categorised into a hierarchy consisting of the following three levels:

Level 1 - valued using unadjusted quoted prices in active markets for identical assets and liabilities.

Level 2 - valued by reference to valuation techniques using other observable inputs not included within Level 1.

Level 3 - valued by reference to valuation techniques using unobservable inputs.

The recognition and measurement policies for financial instruments measured at fair value are consistent with those disclosed in the last annual financial statements.

The following tables set out the fair value measurements using the IFRS 13 hierarchy at the relevant period end:

JPMORGAN FUNDS LIMITED

7th June 2024

For further information, please contact:

Sachu Saji 

For and on behalf of

JPMorgan Funds Limited

Telephone: 0800 20 40 20 or +44 1268 44 44 70

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

ENDS

A copy of the half year will be submitted to the National Storage Mechanism and will shortly be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism  

The half year will also shortly be available on the Company's website at www.jpmindian.co.uk where up to date information on the Company, including daily NAV and share prices, factsheets and portfolio information can also be found.