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The JP Morgan India Investment Trust promotes the country's resilient economy

Last updated: 05:58 03 Feb 2010 EST, First published: 06:58 03 Feb 2010 EST

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The Delhi Auto Show held last month is reputed to have become the world’s largest in terms of footfall.  It certainly serves to demonstrate India’s rising importance and growth potential.  With the country enjoying greater political stability and strong levels of growth JP Morgan India Investment Trust (LSE, JII) continues to provide sound exposure to the region.
 
India’s economy has been impressively resilient to the global downturn.  As such it managed to achieve growth of 6.1% in 2009 and looking forward the OECD expects growth to rise to 7.3% in 2010.  This is despite 2009 being a difficult year due to an inadequate monsoon.
 
On a less positive note the Government’s fiscal deficit was 10.3% of GDP which is not a measure to be proud of.  Furthermore, the OECD has cautioned that reining in the Government’s deficit will be difficult due to its size and the permanent nature of the spending increases.  As ever India remains a mixed picture while the long-term prospects are compelling.
 
An interesting area of debate is whether the relative economic performance of India, and other large emerging markets, shows that the de-coupling theory is credible.  The theory holds that emerging markets are now less dependent on Western economies as together they make up a greater share of world output.  Belief in the idea was so strong that commodities and emerging market stock markets hit new highs in early/mid 2008 even as Western markets started to become weak in mid-2007.

For India the theory is particularly relevant as the economy has been developed since independence with policies to promote self-sufficiency (although clearly liberalisation since the 1990’s has reduced this).  Exports as a percentage of the economy are therefore low and foreign direct investment is not critical to growth.  Domestic savings of around 38% of GDP have funded investment while even in India’s best year for net foreign direct investment, 2007-08, the inflow was $15.5billion, less than 2% of GDP.

Nevertheless an important driver for India has been the service sector and particularly outsourcing.  This has made the country at least to some extent dependent on the fortunes of Western economies.  This sector is also important for the stock market and in JP Morgan Investment Trust (JII) two of the top ten holdings are present in this space.  These are Infosys and Tata Consultancy services which together make up 14.3% of the fund.
 
These funds holdings provide diversified exposure to the Indian Economy with Reliance Industries the largest holding.  This is a conglomerate type business which is spread across many different industries and is India’s largest private business.  The other companies in its top ten include outsourcing businesses, finance/banking companies and car makers.
 
The financial sector remains a big part of the Trust’s holdings.  However, this is not unusual in an emerging market and the sector also offers growth opportunities as savings, investment and borrowing increase.  By contrast Western banks generally only offer higher growth by taking on higher risk.  To illustrate the CEO of JP Morgan India noted at the Indian Economic Summit in November 2009 that 40% of the current bank network is in rural India and covers just 6% of villages.

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