India for the long run

It is often said that “time in the market” delivers better results than trying to time the market, and this rule can be particularly powerful when a large country is in a sustained period of economic development – an era when basic infrastructure is built out, when a primarily agricultural country pivots towards urbanisation, industry and services.

There are plenty of historical examples of this – such as the US and Japan in the last century, or China around the turn of this century – all periods of exceptional returns for equity investors who took a decade-forward view to sit tight and enjoy the fruits of a long-term structural growth story. We are seeing a similar dynamic right now in India – an opportunity that is only too obvious to domestic investors, surrounded as they are by the construction cranes and mushrooming skyscrapers, visual reminders of the growth of the country.

Jupiter’s India fund: Superior returns over 30 years

Foreign investors, however, have to a large extent missed out on the phenomenal stock market returns that India has produced over the last 25 years. Their perceptions of India are often years out of date – many are surprised to discover that India is already in 2025 overtaking Japan to become the world’s fourth largest economy – and their allocations to one of the top four largest equity markets on the planet is incongruously low, with their country weighting typically in the low single digits. One might reasonably expect that the fourth largest economy would have a correspondingly large allocation, especially given that India is the fastest growing among the major economies, with GDP expected to expand at a pace of around 6.5% as far as the eye can see.

The factors driving this superior growth rate are structural and long term in nature, the kind of forces that are almost impossible to derail – if, as they say, “demographics is destiny”, then the future surely belongs to India, with its average age of just under 30 years, compared to over 40 in western countries. Around 7-8 million Indians join the labour force each year, of which ~1.5 million are engineering graduates. Many Western nations face a grim and steadily deteriorating reality of unsustainable pension and healthcare costs due to an ageing population, but India doesn’t face the same conundrum. One important indicator that sets India apart is the old-age dependency ratio, which reflects the number of individuals aged 65 and over per 100 working-age individuals. It provides insight into the potential economic burden on the working-age population to support the elderly.

Over-65s as % of working-age population

While pensions weigh down many Western economies, the Indian government is able to spend on building motorways and airports, and direct subsidies to develop the industries of the future to boost growth.

But demographics alone are not enough to create a positive investment story – the average age in many African nations is even younger, but the equity market returns there have been considerably less spectacular than in India. What differentiates India is its institutions – a democratic government, the rule of law, sufficient stability and predictability to allow companies and consumers to invest for the future. The Modi-led government has delivered some truly impressive reforms over the last decade or so: from unifying disparate state sales taxes into a single Goods and Services Tax, to building digital public infrastructure that far outstrips anything we have in the UK. The Aadhar system of digital ID and the UPI system of digital payments has enabled credit to be built rapidly and safely, giving lenders the transparency needed to extend the mortgages needed to build new homes, to finance the expansion plans of small businesses.

Unfortunately, there is relatively little coverage of this positive work in Western media – bad news, it seems, sells better than good. As a result, the perception of India in most Western minds remains twenty years out of date – its stock market misperceived as a tactical or trading opportunity among many other emerging markets, rather than as the stand-out multi-decade structural case that it is in reality.

Outperformance of Indian stocks driven by superior earnings growth

1 Year forward EPS (Rebased 2010=100)

Often, we hear arguments such as “India is expensive compared to other emerging markets”. India traded at a premium to emerging markets 25 years ago, and that did not stop it from outperforming them. Over long periods of time, it is the level and consistency of earnings growth that determines stock market returns, over and above near-term valuation multiples. A ten percent or a twenty percent premium can soon turn into a discount after a year or two of superior earnings growth. We believe that India’s premium to emerging markets is justified by the rates of long term earnings growth on offer, and by the unique geopolitical position that India occupies – as a large non-aligned power strong enough to chart its own course, without direct exposure to the biggest risk facing both China and the US over the next few years – the Taiwan issue.

In any case, our fund has consistently applied a “growth at a reasonable price” approach, that seeks to identify companies whose earnings growth is equal to or better than that of benchmark stocks, but which trade on lower valuations. We believe that the Indian stock market is exceptionally fertile with such opportunities, due to the breadth and depth of the listed universe and the narrow focus of the main benchmark, which is overly skewed towards well-understood and often expensively valued mega-cap stocks. India has hundreds of off-index stocks that are large, liquid, multi-billion dollar companies, often with better growth prospects than the index heavyweights, but which are under-researched and poorly understood by investors. This is the kind of market where active managers can add a huge amount of value through research. Over the last thirty years, lead manager Avinash Vazirani has returned over 4000% to investors, almost 3x the benchmark return. Such are the fruits of taking a long-term approach to India.

Past performance is no indication of current or future performance. Performance data does not take into account commissions and costs incurred on the issue and redemption of shares. Source: Morningstar, Jupiter Asset Management Limited. Share price stated close to close and includes any reinvestment income. NAV per Ordinary Share is the cumulative income NAV with debt at fair value and includes any reinvested income.

Strategy specific risks

• Currency (FX) Risk - The Strategy can be exposed to different currencies and movements in foreign exchange rates can cause the value of investments to fall as well as rise.
• Pricing Risk - Price movements in financial assets mean the value of assets can fall as well as rise, with this risk typically amplified in more volatile market conditions.
• Emerging Markets Risk - Emerging markets are potentially associated with higher levels of political risk and lower levels of legal protection relative to developed markets. These attributes may negatively impact asset prices.
• Market Concentration Risk (Geographical Region/Country) - Investing in a particular country or geographic region can cause the value of this investment to rise or fall more relative to investments whose focus is spread more globally in nature.
• Derivative risk - the Strategy may use derivatives to reduce costs and/or the overall risk of the Strategy (this is also known as Efficient Portfolio Management or "EPM"). Derivatives involve a level of risk, however, for EPM they should not increase the overall riskiness of the Strategy.
• Liquidity Risk - Some investments may be hard to value or sell at a desired time and price. In extreme circumstances this may affect the Strategy's ability to meet redemption requests upon demand.
• Liquidity Risk (general) - During difficult market conditions there may not be enough investors to buy and sell certain investments. This may have an impact on the value of the Strategy.
• Counterparty Default Risk - The risk of losses due to the default of a counterparty on a derivatives contract or a custodian that is safeguarding the Strategy's assets.

For a more detailed explanation of risk factors, please refer to the "Risk Factors" section of the KIDs (Key information documents).

Footnotes

¹CLSA, January 2025 (FY27 over FY25), MSCI India vs. MSCI EM, MSCI USA, MSCI ACWI, MSCI China.

Important information

This marketing document is intended for investment professionals* and not for the benefit of retail investors.

This document is for informational purposes only and is not investment advice. Market and exchange rate movements can cause the value of an investment to fall as well as rise, and you may get back less than originally invested. Initial charges are likely to have a greater proportionate effect on returns if investments are liquidated in the shorter term.

Past performance is no guide to the future. Company examples are for illustrative purposes only and are not a recommendation to buy or sell. Quoted yields are not a guide or guarantee for the expected level of distributions to be received. The yield may fluctuate significantly during times of extreme market and economic volatility. Awards and ratings should not be taken as a recommendation.

The views expressed are those of the presenter at the time of writing, are not necessarily those of Jupiter as a whole and may be subject to change. This is particularly true during periods of rapidly changing market circumstances. Every effort is made to ensure the accuracy of the information provided but no assurance or warranties are given.

Issued by Jupiter Asset Management Limited, registered address: The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ is authorised and regulated by the Financial Conduct Authority. Issued in the EU by Jupiter Asset Management International S.A. (JAMI), registered address: 5, Rue Heienhaff, Senningerberg L-1736, Luxembourg which is authorised and regulated by the Commission de Surveillance du Secteur Financier."

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"*In Singapore, investment professionals refer to institutional and accredited investors as defined in the Securities and Futures Act (Cap. 289) of Singapore."