So and good afternoon, and a warm welcome to everybody.
As a reminder, my name is Amit Mehta.
I'm a portfolio manager for your company, JP Morgan India
Investment Trust.
As Rosemary mentioned, I'm also joined in person, or in person
for you, at the AGM by my colleagues
and co managers, Sandip Patodia and Ayaz Ebrahim.
The agenda will follow with me covering
the year gone by, performance portfolio, and the outlook.
I will then hand over to Sandip to talk a bit about portfolio
additions and new ideas and new investments
we've made in your company.
And Ayaz will then follow on to talk a bit
about the macro outlook, after which I will provide a summary
and then hand back to Rosemary and the board
to open up questions.
So let's begin with the next slide, which
is a reminder of the team.
You've heard about the portfolio managers
and who are present here.
But it's also important to know that we
have a very broad and deep resources in our analysts.
So the PM team works very closely
with our analysts, who I mentioned.
And we have 12 of those that are both on the ground
in Mumbai as well as across the world covering
global industries.
And most of them have long-standing tenure
in the industry.
That's the team as you see on that page.
If you go to the next slide, it's
just as important at the beginning and every year,
as much as it is to talk about our resources and the breadth
of the team, to also remind shareholders and investors
about what types of investments you should expect
us to be making in your company, but also what
types of investments are unlikely for us to invest in.
So apologies, I said last year, you're
likely to see this slide again.
And I apologize again that you'll likely see it again
in the future.
But I think it's very important for us
to understand what we're trying to do.
So again, a repeat of that slide.
What we're trying to do, very simply,
is find high-quality businesses with strong governance
at an attractive valuation.
It's really that simple.
But the order there is very important.
The hierarchy of our decisions is very important.
We never start by asking our analysts about
whether businesses are cheap.
We ask our analysts and we ask ourselves
whether we think it's a great business.
And that's really the starting point for us.
And it's really in that order.
The people and business matter much more to us
than just the simple consideration of valuation.
In our view, if we get the first two judgments right,
the ability for these businesses to compound over a long period
of time will be much higher.
Now, when we find these businesses--
and we say India as a market has much more fertile ground
for these types of businesses--
we want to own them for as long as possible.
And that's for a number of reasons, one of them being you
really want to get the benefits or the full benefits
of compounding.
And you can only do that if you stay as long-term investors.
And secondly, we want to try and dilute
as much as we can the transaction costs that
come with investing in some of these more emerging markets.
And so we do prioritize financial outcomes.
And we think this is very connected.
So if you start with that premise, the only thing
that really matters--
and if we go to the next slide, you
can see, again, a slide that we did present
last year, very much, what really
matters in the long term.
You're a long-term investor.
You believe in the power of compounding.
Actually, the only thing that really matters
is whether the businesses and the investments that we're
making on your behalf have the ability to grow their earnings
and do it sustainably over a long period of time.
And what this chart really just shows
you simply is the holding period, so the bottom axis,
so the longer you go out and what the returns
and where the returns come from.
And the blue bars are really the earnings
plus the dividend stream.
And you can see the longer you hold a security for actually--
or the longer you invest in the market for,
actually the only thing that really matters
is whether the businesses have been
able to deliver attractive earnings
and have been able to pay you a little bit of a dividend.
And this is the area we're really
focusing on in our investments for your trust.
So having put that as a backdrop,
we go to the next slide.
Let's talk a little bit about performance and the numbers.
So here, we have the last fiscal year
that ended in September 2023; the portfolio return,
so that's the net asset value return over that one year
period was 1.2%; the return of the benchmark, which
is MSCI India was 0.7%; and both those numbers are in Sterling.
And the share price return was 2.2%,
so a very small narrowing of the discount.
So that was the return over the year.
If you look at it on calendar years' basis,
you can see the numbers here as they're presented.
Last quarter of the calendar year
was a very strong return for the market.
And it was over that period that we had a little bit more
of a headwind to performance.
But the other thing also to remind
shareholders and investors is that this is obviously before--
the numbers you see at the index level
are before capital gains tax, which is obviously
a real charge for everybody.
If we go to the attribution on the next slide,
so on slide 7 now, you can see what worked for us really well
and areas that were detractors.
So if we start with the contributor,
clearly a big cluster of a group of companies,
so the Adani Group companies, which
we talked about last year, where we had no exposure to,
that's obviously been one big cluster that's been positive
in terms of portfolio performance, and also
more recent additions, as well as businesses
that we've taken larger positions in,
Supreme Industries, which has done significantly well for us.
And obviously, this is only a small snapshot and small number
of businesses.
At the bottom end of the areas that
detracted from performance, three out
of those four businesses, the ones
that we have no exposure to.
And they are, going back to what I said right at the beginning,
these are businesses that we're really not
likely to have exposure to because they are either deeply
cyclical, very capital intensive,
lower quality businesses where we think
there's questions on duration.
And then, from a sector attribution perspective,
you can see clearly the areas that did very well not having
any of the utilities, which is connected to some
of those individual names, financials--
our financial holdings, I've talked a lot
about this in the past, where that's
been a significant overweight for us-- contributed
positively.
And industrials, both in terms of some businesses that we did
own, but also businesses that we didn't
own where the investment cycle has been very, very
positive there.
If we go to the next slide, and again, it's not a new slide.
But I think it's very important because I don't think
things are going to change.
But actually, the title here is just as important today as
probably as it's ever been, i.e.
exploring the investment possibilities of the world's
most powerful growth engine.
I think the last 12 or 18 months have really
been our ability for India to really show
it beginning parts of the growth engine
that have really been dormant for a long while.
And actually, I don't show it here,
but we'll talk about that in a moment.
So the three big areas that we've
had long standing exposure to are clearly lifestyle upgrades.
And you've seen me talk about it as well as write
about it, which is about, as the income pyramid continues
to shift, you're going to see the desire
for different products increasing.
Financial deepening, and this comes from increased access
by individuals to credit.
And again, as you get the access,
the propensity to consume grows.
And then the long standing or the historical drivers
of areas that have done very well for India as an economy
is the offshoring.
And we don't think any of those are changing.
So I'm going to take all of those individually.
But we're also going to talk about the next cycle,
or the cycle that we think we're in at the moment.
So if we go to the next slide--
look, I think the drivers of consumption
are very much in place.
There is still parts of the economy that
are doing much better and parts that are still
waiting for that recovery.
Now, if you look at the left-hand side of this chart,
you can see the percentage of the higher income category
growing.
So you see the population change with income.
So the population that had more than $10,000 US
in income starting from 2011 on the left-hand side going up to,
today 2023, and what we expect in the next two or three years.
And you can see, even if you look at 2019 to 2023,
that simple four-year period has seen
nearly a doubling of the number of people that
have gone from being sub $10,000 in annual income
to more than that.
And we expect a similar doubling over the next two or three
years.
And it's just not that in terms of simple stats.
What that means is actually you start
seeing, if you look at the right-hand side,
some of the simple things starting to play out
where you're starting to see more and more individuals
transacting and spending more time on websites like Nykaa,
which is a beauty transactional website,
or buying more vehicles.
And actually, some of the numbers-- and maybe just to
put this into context.
India has roughly about 300 million households
and about 1.4 billion in terms of population.
And if you look at the number of households
that owns a vehicle--
30-- 30 million households out of a possible 300.
Our whole population of 1.4 billion, 85 million people
have credit cards.
So the number is just purely staggering in terms
of the long-term opportunity.
And as that income pyramid continues to shift northwards,
we expect the ability for businesses
that are exposed to some of these areas
to continue to see significant long-term growth opportunities.
If we go to the next slide--
and I think this is important.
And I actually think this is one of the most material changes
that we've seen in the last 12 months.
And actually, it also tells the picture of India
as a market in the economy over the last 20 years.
So if we look at the investment cycle-- and I think
we wrote about this in the annual report, which
was the start and the potential start of a real investment
cycle.
The last time we had a proper investment cycle in India
was between 2000 and 2007, pre the global financial crisis.
And you can see here how investments continue
to grow as a percentage of GDP.
The last 10 years have actually seen
that significantly reverse.
And it's been pretty dormant in terms of real investments.
And we've only really started to see that reaccelerate
in essentially the current term of the current government.
And clearly, that's a view that actually the government
feels pretty comfortable with the outlook on politics
and in terms of the elections that are coming.
And I'm sure there'll be questions around that.
And also, more importantly, you can see now
that after utilizations have, one, recovered
from the traction from COVID to normal levels,
but also likely to now start going above levels, where
the private sector will need to continue
to increase investments.
So we think this is the real new tailwind for the India
investment story to continue to have legs and continue
to drive economic growth.
Now, if you go to the next slide,
this is very much one that everyone
should be familiar with, which is about the market
share gains on the supply side, where India still
remains a low-cost manufacturing opportunity.
Labor costs remain relatively low.
The yellow part of that left-hand chart
tells you that the average pool of labor costs are $13,000 US.
Similar engineer in the US will cost 10-fold or 10 times
that number.
So the market share gains that the right-hand chart
shows you are ones that we think, whilst they may have
been quieter over the last year or slower over the last year,
we expect them to be able to continue to gain share.
And that's going to spill over also
into other industries where I'm sure a lot of people
have already heard about the new investments happening
from companies like Tesla or Apple, et cetera.
And that's going to be driven by some
of that opportunity on the cost side.
Now, let me just finish off before I hand over to Sandip
on what that means and from a portfolio positioning
and how it looks from a sector and a stock perspective.
I talked about those broad themes.
It shouldn't be any surprise then that actually
the significant portion of your investments
are in the financials, consumer, and tech sectors.
It's the areas that we find both bottom up stock opportunities
the most attractive, but also where we think actually
the long-term opportunities from the industries exist.
The right-hand side has been a long-standing structural
underweight.
You shouldn't expect that to change.
We're unlikely to invest in energy material, utilities,
property, highly capital intensive, deeply
cyclical businesses.
We think the India investment story
is much more about the domestic opportunity,
as I've already highlighted.
And I think that's the real opportunity for our underlying
investments for your company.
And the last couple of slides are really
the top 10 positions, on the next slide, which are some
of them, very well-known names.
But actually, I think these take away
from the real other opportunities
that we've got in the portfolio.
And that's what I've asked Sandip to talk
a little bit about in a moment.
So if you go to the next slide, which
is very much the portfolio characteristics, bringing
all of that together, if you start actually
in the bottom right, you can see a broad spread
of market capitalization.
We will go wherever we find the best opportunities.
We are not particularly using the Trust structure.
We have the ability to go down the liquidity spectrum.
And we will if the valuations make sense to us.
The classifications tell you that it's--
this is an internal classification system,
but it tells you that the vast majority of your trust assets
are in businesses of premium quality, i.e. the highest
quality parts of the Indian market.
And in terms of overall characteristics,
you can see here that the numbers that focus
a lot more on return on equity and the debt
that the businesses that we invest
in, which is significant, the return
on equity, which is a yardstick for corporate quality, which
is significantly higher than the benchmark.
Leverage or debt on balance sheets
is significantly lower than the benchmark.
And we think businesses can sustain these high returns
on capital.
And they can continue to deliver higher rates of growth.
And that means you get the numbers
that you see on that page.
The only other two numbers to point to here
is our active tier, which has gradually crept up
over the year and that's as we continue
to find more and more idiosyncratic opportunities,
and the beta, which is always going to likely be south of 1.
And that's very much driven by investments in higher quality
businesses.
So with that, as I said, we've talked
about some of the larger names.
But I'll pass over to Sandip to give you a little bit more
of a highlight of some of the mid-cap names
or some of the more interesting opportunities
that you may not see just by looking at some of our top 10
holdings.
So Sandip, over to you.
--manage the India trust along with Amit and Ayaz.
On this slide, we have highlighted four companies
that we have added to the portfolio during the year.
I'll start with Tube Investments, which
is a part of an Indian conglomerate called Murugappa
Group, with a reputation for prudent and efficient capital
allocation.
We were impressed by the group's clearly articulated strategy
of making Tube a diversified industrial manufacturer
across auto components, motors, electric vehicles,
medical equipment, and CDMO sectors
with low-cost manufacturing excellence at its core
competency.
This mindset for this business has
translated into excellent economics
for the business demonstrated by the strong growth, returns,
and cash flow generation.
The second company on the slide, as you can see,
is Triveni Turbine, which is another industrial business.
And this plays into the theme of the CapEx cycle
that Amit talked about in his previous slides.
It is the largest manufacturer of steam turbines in India.
The business generates an underlying return
on capital of 200%.
What I mean by that, if you think of return on capital,
you think about, let's say, if you
have a fixed deposit in the bank account,
it earns an interest income of, let's say, 5%.
200% return on capital represents the return
they make on investments they make just
to give you a comparison.
And they generate such high returns
by virtue of its technological leadership
in a complex segment with strong cost advantage
and extremely good relationship with its customers.
There is visibility on long-term growth,
both from strong domestic demand in the Indian market for power
generation and market share gains in the global market,
from giants like Siemens, including expansion
into much higher margin after-sales services business
that Triveni has embarked upon.
The majority owners of this business are very conservative
and have demonstrated prudent capital allocation
and consistently return excess cash to shareholders.
So that was the second one.
The third company that I'd like to highlight is Coforge.
And Coforge is a midsized IT services company
that offers strong incentives to sales teams, which
has allowed it to effectively compete
with large, more established IT services
companies in the country, likes of [? PCS ?] and Infosys
that we also own in the portfolio, by the way.
This incentive culture, which was instituted
by the CEO Sudhir Singh following
his appointment in 2017 and has resulted
in the company delivering one of the fastest
growth in the industry over the last five years.
In addition, the company has a reputation
for superior delivery of services
backed by having the lowest employee
attrition in the industry.
All of this combined with good governance
and reasonable valuations made Coforge
an attractive investment for the trust.
And finally, Cholamandalam is a leading
wholesale-funded vehicle financier that has consistently
grown its assets under management in excess of 20%
by expanding into new segments while maintaining one
of the lowest credit costs through a cycle
and an attractive ROE profile of 19% to 20%.
The company targets middle-of-the-pyramid customers
in India and provides them with loans to support livelihoods
with a focus on data-driven underwriting.
This providing loans to customers
that support livelihoods is important
because it reduces the risk of default automatically,
purely because it's a livelihood linked loan that they provide.
Overall, Chola screens well in our economics, duration,
and governance framework given the ability
to balance growth and profitability.
Extending growth runway via expansion
into new segments and comfort, we derive on governance
from it being part of Murugappa Group.
I hope the examples give you a sense of types
of high-quality businesses that we
invest in backed by a robust research process
while being conscious of valuations.
It goes back to the investment process
that Amit talked about in the first slide.
With this, I will hand over to Ayaz
to run through the rest of the presentation
before we take questions from the audience.
Thank you.
Good afternoon.
Thank you all for being here.
And thank you for all the support.
I'll just in a few minutes give an overview
of what we think the macro position is right now in India.
And the slide that we have here is a good summary of that.
In terms of GDP growth over the last few years,
I think all of you have already guessed that essentially
in the year to March 2021, it was a negative year in terms
of GDP growth.
But that was because of COVID.
We saw a sharp rebound in GDP growth for the year
up to March 2022, which was around just short of about 9%.
And we're now back to levels where
we think India has a very normalized growth
rates of anywhere between 5 and 1/2% to possibly 7%.
And we think that is sustainable over multi years.
What is it being driven by right now?
And I think this is important to note.
The CapEx cycle, which Amit talked about,
is very much in place.
The whole CapEx cycle is improving.
It had been the impetus, especially after COVID,
was led by the government.
But we're now seeing that the private sector
CapEx is beginning to grow as well, which is very important.
The other thing to bear in mind here that the CapEx cycle is
also linked to or an extension of infrastructure spending.
Those of you who've been to India
have seen the fact that, yes, India still
needs better improvement in roads, ports, airports, power.
And we've seen a lot of improvement in that area.
I started investing in India in 1991.
And even before that, I used to go regularly to India
as I'm of Indian origin.
And I've seen so much improvement in that area,
visibly myself.
Mumbai Airport is great.
You've got new roads that are coming out
in Mumbai that are making distances much shorter.
One big commute is one area from Bandra to South Bombay,
which normally takes 1, 1 1/2 hours,
it's going to be cut down to 15 minutes with these coastal
highways that are being built. So one of the issues,
which was always being asked in the 1990s to me,
is what are the risks to investing in India.
And I always said the risk was the government policies
are going in the right direction for growth,
but bottlenecks could be reached because of infrastructure.
However, we are seeing that being addressed today.
And I think those developments are very strong.
And it's coming out through the numbers in the infrastructure
spending that we're seeing, led by the government,
but the private sector is increasing
as well, which is important.
In terms of growth going forward into the next 12, 24 months,
again, we believe the CapEx cycle
is continuing to be strong.
Private sector investment in that area
also is going to take some of the public sector,
allow the public sector to come down a bit.
Very importantly in the budget, which
was announced in early February, there
was always a danger in speculation
that this budget was going to be populist because,
as you all know, the general elections are coming up.
But full credit to the government, it
was not populist.
It was very prudent.
It talked about government expenditure
being tightly controlled.
It was focused, again, on infrastructure.
But it laid out a plan as well of government expenditure
coming down over the next few years,
with hopefully more private sector investment in that area,
so a very prudent and sensible budget.
Going on to the elections, I think all of you
are fully aware of what's going on
and what's being written about.
It does appear that the BJP will win quite comfortably
with a good majority in Parliament.
What that will mean in terms of economic policy means
that it will continue the way it is.
It is pro business, continued investment into infrastructure,
which will help India meet its full potential.
So we continue to be very positive on that side.
Maybe I should just mention over here very quickly
what are the risks.
I've pointed out some very positive picture,
which we very much are.
The consumption story, which Amit's already talked about
and touched on by Sandip in various ways as well.
I think in the nearer term, where oil prices are,
we would have always been concerned
in the past about current account deficits and so on.
But it's in pretty decent health at the moment.
Again, I think government policy has been very good.
And RBI policy, Reserve Bank of India,
again has managed all of this very well.
But the other thing I wanted to point out here,
which isn't talked about a lot, is
that Amit pointed out about the cost advantage that India has.
And that was always focused on the IT sector being exported
out of India, providing solutions
for big corporates in the US, UK, Europe, and so on.
But there's a lot of onshoring taking place right now.
And what does that mean?
It's these global centers of where multinationals
are hiring people in India to work for them in a global way.
An example of that is JP Morgan.
We have 270,000 people globally.
We have 55,000 of them employed in India, Indian people.
Now, this is not only JP Morgan, but it's
the Googles, the Microsofts, the Goldman Sachs, the Citigroups.
And this is providing important foreign exchange to India
as well.
And we see this trend continuing in providing
that more balanced in terms of foreign exchange as well,
so important to highlight
I think geopolitically there's always tensions.
And there are issues that are going
on we should be aware of that.
But oil prices would have been a concern,
but it's mitigated at the moment with what I just talked about.
Maybe just talking about inflation and interest rates
on the next slide.
In terms of interest rates, which
is on the left-hand side of the chart
there showing the 10 year bond yields,
we've seen that actually stabilizing.
And that's linked to the fact, if we
go to the right-hand side, inflation has been steadying.
And we actually believe that we may see interest rate
cuts from the Reserve Bank of India later on this year.
But certainly, inflation is coming under control.
And we're not too concerned by that at the moment.
Inflation had blipped up, largely driven by food prices,
part of it due to COVID supply constraints, which is easing,
but also government policy, which
is helping to ease some of those supply constraints.
Maybe we'll go on to the next slide
about a very important factor about what
is delivering returns in the Indian stock
market for investors.
This is showing returns or the breakdown
of returns for different markets in the emerging market area.
The sources of returns in terms of equity markets
are really broken down into four bits.
One is earnings growth.
The other one is dividends.
The third, which is shown in brown,
is changes in valuations.
And the fourth is currency movements.
Now, we've taken some examples.
And we've just look at emerging markets
as a whole, which is shown on the left-hand side
of the chart.
We can see from there that we had 10.3% delivery
in the last 12 months in terms of emerging market
returns in US dollar terms.
Changes in valuations actually was the biggest contributor.
And that led to that 10% returns.
Earnings growth was, in fact, a bit
on the negative side as a whole.
So it was actually increasing valuations
that gave returns to shareholders on a positive side
for the last 12 months.
Now, you put India in that context,
India actually returned about 21%
as a whole of the equity market.
But importantly, it was actually largely driven or purely driven
by earnings growth.
So it wasn't changes in valuations that gave investors
that return.
It was actually companies delivering and growing
that led to those returns, which is a very healthy environment
to be in that companies are producing shareholder returns.
And so going forward, what do we think earnings are?
For the next 12 months, we think earnings in India ballpark
about 15% forecast at the moment.
And we believe that's sustainable in the teens,
perhaps about 13%, 14% into the following year.
Obviously, we and our group of analysts
will keep important forecasts and keep them updated regularly
so we know where we are.
But that's where the forecast is today.
Maybe one last slide in terms of India offering diversification.
This is showing correlations between various emerging
markets--
India, China, particularly emerging markets as a whole,
to the global markets of US and the global index
measured by the MSCI index.
So one means there's a direct correlation.
Obviously MSCI India to MSCI India
is a direct correlation of 1 to 1.
But as you can see, when you compare
India's correlation with MSCI World, it is 0.67 times.
So there's some correlation, but it's not very large.
Whereas, if you see the correlation of MSCI Emerging
Markets, with the MSCI World, it's nearly 0.8 times.
So emerging markets as a whole has a more direct correlation
with global markets.
In other words, if the US goes up,
you've got a high degree of--
if the US goes up, there's a high degree of probability
that emerging markets will also go up.
India may be less so but has some correlation.
But importantly, if it goes down and the US goes down,
emerging markets as a whole has a higher probability
of going down than India.
We may point out China.
China has a very low correlation right now with global markets
or of the US markets.
And I think that number has actually
come down quite a fair bit over the last few years, one,
because of the COVID policy.
Second, it's going through its own economic issues, largely
driven by the property sector right now.
And I think if we looked at those numbers
just four or five years ago, China's correlation would have
been much higher with the US.
So the message over here is that India offers diversification.
Earnings growth is coming through.
And shareholders are benefiting from earnings growth coming
through as opposed to just valuations going up.
And I think that's a very powerful signal.
With that, I'm going to leave it to Amit to summarize.
And I'll stay up here for questions.
Thank you, Ayaz.
And thank you, Sandip for the stock illustration.
So look, I think we've articulated
how the year has gone by.
Ayaz has done a great job of articulating the opportunity.
And look, it should be no surprise to you
that we remain extremely positive about the structural
opportunity that India offers.
I think we've become even more positive
about that structural opportunity driven
by the investment cycle.
And Ayaz has illustrated really very well
about the government-driven investment cycle.
I think that's a real opportunity for us
for the next five to 10 years.
If you look at the summary slide that we have here,
I think the main things to take away here
is that it's one of these rare markets where
you're seeing economic growth.
And Ayaz talked about real GDP numbers, 5%, 6%, 7%.
In nominal terms, that's 10%, 11%, 12%.
There is no economy in the world that's growing at 10%, 11%, 12%
in nominal terms.
But that's also translating into equity market returns.
And again, it's one of the rare examples.
So to summarize, I think we have a huge opportunity.
I think India is on the beginnings of that last bit
that it needed to really stimulate economic activity.
If you look at the next slide, the bit
that we've only really touched upon is
the question we get most about is about the valuation premium.
Is it justified?
Are we paying too much for that India growth story?
I think those are absolutely fair questions.
But you need to put those in terms
of the context of corporate profitability and growth rates.
I think we probably all agree that there's probably
no economy in the world that's going to grow sustainably
at the rate that India is able to grow at.
So then it's really about the long-term returns on capital
that the country and the companies can deliver.
And if you look at this chart, which
I've talked a bit about in our annual reports as well,
is that the blue bars tell you what
the average return on capital for different economies
in the world is.
But more importantly, the yellow bars
tell you how much does that return
on capital change over time, so how volatile is it.
And you can see the two markets on the left,
there's two markets that have a very high and a very low--
or a volatility that's extremely low in that return on capital,
which is India and the US.
So it shouldn't be any surprise, when
you look at the right-hand side of this chart,
that if you look at pretty much any time period, the two
markets that deliver the best performance have
been India and the US.
And so our view would be that actually,
yes, it's been a great 5, 10, 15, 20 years we think.
And our view is we remain as positive
about the next decade as the last decade and, as I said,
I think probably more so than I would have said 12 months ago
because now you've got the last leg of that growth coming in
from infrastructure and investments.
So with that, let me hand back to Rosemary and the board.