CHAIRMAN’S STATEMENT
Performance
During the 12 month period ended 30th September 2024, the MSCI India Index increased by an impressive +27.7%, outperforming both the MSCI Emerging Markets Index and the MSCI China Index.
Against this positive backdrop, the Company produced a total return on net assets of +18.1% in the year, underperforming its benchmark by -9.6%. Nearly all of this underperformance occurred in the first half of the financial year, and is mainly attributable to the Portfolio Managers’ bias towards higher quality corporate names, at a time when lower quality sectors of the market did well. The performance of several portfolio holdings also disappointed over the year. In addition, some areas of the market are now experiencing what the Portfolio Managers believe are unjustifiably high valuations which have precluded them from participating to any meaningful extent, given their focus on quality. Moreover, it must also be noted that of the shortfall compared to the benchmark, 4.4% is attributable to capital gains tax not being included in the benchmark.
In their report on pages 13 to 18 in the Annual Report, the Portfolio Managers provide a detailed and frank commentary on the year’s performance. They also discuss portfolio activity and their outlook for the Indian market over the coming year and beyond.
While this relative underperformance is disappointing, the Company’s return over the past year at +18.1% is high in absolute terms. Given the Portfolio Managers’ long term investment focus, it is sensible to judge their performance over a longer time frame. On this basis, the portfolio has realised an average, annualised return of +9.5% over the ten years ended 30th September 2024. However, this is still behind the benchmark’s annualised return of +12.1% over the same period.
Board Review of Investment Manager’s Investment Process and Performance
Against this backdrop, the Board has undertaken a detailed review of the Investment Manager’s investment process and the drivers of the Company’s underperformance, particularly in the most recent period. The Investment Manager’s process is designed to identify and invest in superior businesses with growth potential which will likely deliver strong absolute returns and outperform over time. This review confirmed that up to the middle of 2023, premium and quality businesses as defined and favoured by the Investment Manager, had outperformed the broader Indian investment universe, whilst, more recently, cyclical and challenged businesses (again as defined and least favoured by the Investment Manager) outperformed. In summary, since the middle of 2023 companies with riskier characteristics and cheaper initial valuations have materially outperformed higher quality companies with strong governance. In order to improve their opportunities for relative outperformance, the Investment Manager has allocated further resource to their Indian equity strategy, by hiring additional analysts on the ground in India to deepen their local knowledge and to promote idea generation via greater market coverage, particularly in the mid and smaller company area. Recognising that many factors remain outside the control of the Investment Manager, the Board is minded to allow time for these measures to result in a noticeable improvement in long term relative performance, while continuing to keep performance under close scrutiny.
Revised Management Fee Arrangements
As recently announced, with effect from 1st October 2024, the annual investment management fee, calculated as 0.75% on the first £300 million and 0.60% in excess of £300 million, will be charged on a market capitalisation basis instead of on a gross assets basis, as previously.
The Board believes that this change of fee basis will not only be immediately accretive to the Company in monetary terms but will also more closely align the interests of the Manager with those of the shareholders.
Discount and Share Repurchases
At the AGM held in February 2024, shareholders gave approval for the Company to renew the Directors’ authority to repurchase up to 14.99% of the Company’s shares for cancellation or transfer into Treasury.
The discount at which the Company’s shares trade versus its NAV narrowed slightly to 17.8% over the review period (2023: 19.3%). The Board is cognisant that it is in shareholders’ interests that the Company’s share price should not differ excessively from the underlying NAV under normal market conditions, and as such, it constantly considers 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. Given the Board’s conviction that the level of the current discount to NAV is unwarranted, during the year, 4,408,623 shares were repurchased, amounting to 4.4% of the shares in issue, and held in Treasury. Since the financial year end, the Company has purchased a further 1,355,248 shares. As shares are only repurchased at a discount to the prevailing net asset value, share buybacks benefit shareholders, as they increase the net asset value per share of remaining shares.
The Board believes that the share buyback facility is an important tool in the management of discount volatility and is, therefore, seeking approval from shareholders to renew the authority to repurchase the Company’s shares at the forthcoming AGM in February 2025.
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. The continuation vote will next be put to a shareholder vote at the Company’s AGM to be held in 2029.
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 levied by the Indian government on long-term and short-term capital gains, which the Company’s benchmark does not take into account. Until 23rd July 2024, these were on the headline rates of 10% and 15%, respectively, plus associated surcharges of approximately 1-1.5%. On the 23rd July 2024, the headline rates on long-term and short-term capital gains were increased to 12.5% and 20% respectively, plus associated surcharges. Such capital gains charges are not included in the performance of the Benchmark. Therefore, for the avoidance of doubt, 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. To enable the tax-adjusted performance to be compared to the Benchmark, the Company publishes the Company’s unaudited tax-adjusted NAV per share on a monthly basis, through a Regulatory Information Service platform. The NAV performance since 1st October 2020 before the impact of capital gains tax, stood at +95.5% as at 30th September 2024, compared to +105.4% for the benchmark.
Board
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 retired following ten years on the Board, the last three of which she served as Chairman. I would like to take this opportunity on behalf of the Board to thank Rosemary once again for her wise counsel and leadership during her tenure. Vanessa Donegan assumed the role of Senior Independent Director and Chair of the Nomination Committee and Remuneration Committee following my appointment as Chairman.
During the year the Board commenced an external recruitment search for a new Non-executive Director. I am delighted to report that the process concluded with the appointment of Charlotta Ginman on 1st August 2024. Charlotta is a qualified Chartered Accountant and an experienced Non-executive Director. Her professional experience is summarised on page 43 of the Annual Report.
Jasper Judd, our Audit & Risk Committee Chairman, will retire at the conclusion of the 2025 AGM. The Board has benefitted immensely from Jasper’s commitment and consistently thoughtful and constructive contributions. He will leave with our gratitude and best wishes for the future. It is intended that Charlotta Ginman will take on the Chairmanship of the Audit and Risk Committee from Jasper upon his retirement.
The Board supports the annual election/re-election for all Directors, as recommended by the AIC Corporate Governance Code, and therefore all the Directors, with the exception of Jasper Judd, will stand for election/re-election at the forthcoming AGM in 2025.
Audit Tender
PricewaterhouseCoopers LLP (‘PwC’) has been the Company’s independent auditors since 2015. The Company’s Audit & Risk Committee, taking account of the regulatory requirement to conduct an audit tender at least every ten years, undertook a tender process during the year for the audit of the financial year ending 30th September 2025. Several audit firms, including the incumbent, were invited to participate in the tender process. Following a detailed review of the tender submissions, the Audit & Risk Committee recommended to the Board the continued appointment of PwC, given the firm’s breadth of experience within the investment trust sector and the resources and strength of their audit team. PwC are not permitted to continue as auditors beyond the year ending 30th September 2034, by which time a further audit tender must have taken place.
Stay Informed
The Company delivers email updates on the Company’s 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 www.tinyurl.com/JII-Sign-Up or by scanning the QR code in the Chairman’s Statement of the Annual Report.
Annual General Meeting
The Company’s thirty-first AGM will be held at 60 Victoria Embankment, London EC4Y 0JP on 11th February 2025 at 2.00 p.m. We are delighted to invite shareholders to join us in person for the Company’s AGM, to hear directly from the Portfolio Managers. Their presentation will be followed by a question-and-answer session. Shareholders wishing to follow the AGM proceedings but choosing not to attend in person will be able to view proceedings live and ask questions (but not vote) through conferencing software. Details on how to register, together with access details, will be available shortly on the Company’s website at www.jpmindian.co.uk, or by contacting the Company Secretary at invtrusts.cosec@jpmorgan.com.
My fellow Board members, representatives of JPMorgan and I look forward to the opportunity to meet and speak with shareholders after the formalities of the meeting have been concluded.
As is best practice, all voting on the resolutions will be conducted on a poll. Your Board encourages all shareholders to support the resolutions proposed. Please note that shareholders viewing the meeting via conferencing software will not be able to vote on the poll and we therefore encourage all shareholders, and particularly those who cannot attend physically, to exercise their votes in advance of the meeting by completing and submitting their proxy. Proxy votes can be lodged in advance of the AGM either by post or electronically; detailed instructions are included in the Notes to the Notice of Annual General Meeting on pages 96 to 98 in the Annual Report.
If there are any changes to the above AGM arrangements, the Company will update shareholders through an announcement to the London Stock Exchange, and on the Company’s website.
Outlook
The Board shares the Portfolio Managers’ view that the investment case for India remains compelling, thanks to the country’s strong and improving growth prospects, which are supported by a series of major structural reforms. India’s economic outlook is even more impressive given that most major economies, with the exception of China, are forecast to deliver only modest growth over the next couple of years. In addition the attraction of investing in the Indian stock market lies in the ability of listed companies to convert the country’s exciting growth prospects into strong earnings growth. This positive outlook should translate into great opportunities for equity investors with a longer-term perspective.
Having undertaken a review of the Investment Manager’s process and performance and agreed revised Management Fee arrangements as detailed earlier, my fellow directors and I welcome the steps the Portfolio Managers have taken over the review period to gain broader, more balanced exposure to these opportunities, across a wider range of sectors. We also support their focus on good quality businesses with sustainably high returns on capital and superior growth prospects, and their disciplined approach to valuation, which means they are unwilling to overpay for otherwise attractive companies that fit their investment criteria.
We believe that the Portfolio Managers’ focus on identifying interesting and appealing businesses, combined with their disciplined investment process are well positioned to provide patient shareholders with an enduring and reasonable return over the long term.
We thank you for your ongoing support.
Jeremy Whitley
Chairman 12th December 2024