US Edition JP Morgan Indian Investment Trust
320.1p +9.7
Questor says Hold
The Indian blue-chip index, the Sensex 30, has risen 84pc since its March low. The rally in the UK has been pedestrian in comparison, with the FTSE 100 up a mere 33pc.
Moves up or down in emerging markets are exaggerated. That's why they are a good investment in the first place – unless you get the timing wrong. Should the recent market rally go awry in the West, there will be large falls in fledgling markets such as India.
With gains of 45pc in our Indian market play, Questor feels it is appropriate to now have a hold rating on the investment trust – and review the position again in September.
JP Morgan Indian Investment Trust was tipped in January at 224p and Questor is in no doubts that these gains are just the start for investors taking a long-term perspective.
However, views on the near-term prospects for the Indian stock market are mixed. Two weeks ago, JP Morgan itself raised its stance on Indian shares to overweight from neutral. The broker argued that political stability and economic reforms should allow the economy to grow and its companies to flourish.
Interest rates have been cut six times since October last year and are now at historic lows. Manmohan Singh of the Congress party was elected as prime minister earlier this year, winning a resounding – and unexpectedly clear – victory.
However, there are also fears about the effect of the dryer-than-expected monsoon season. A significant amount of India's economy is rural and failed crops mean no money for people to spend. It is estimated that 742m people live in villages across the country.
However, there are tentative signs that the current drought may be easing.
"We need to see sustained and well distributed rains over the next three weeks to ensure that crops, which have survived the lack of rains, fare well," Ashwini Bansod, an Indian commodity analyst at MF Global told Bloomberg yesterday. "Most crops are at the grain formation and reproductive stage."
Despite any near-term market wobbles, the fund's investments show great long-term potential. Telecoms group Bharti Airtel is currently in talks with South African peer MTN over a merger that would create an emerging markets telephone group with more than 200m customers in growth markets. The negotiations regarding a cash-and-share deal have been going on for months, however, as MTN tries to get a better deal.
Infosys Technologies, India's second-largest software exporter, recently said that the group was negotiating contracts that could be worth up to $1bn this quarter. However, tobacco group ITC has been hit recent by fears the late monsoons will hit tobacco plant yields.
Questor continues to prefer a broad investment in the Indian stock market to the Chinese market, but with question marks remaining over prospects for the rest of this year, the stance on JP Morgan Indian Investment Trust is now a hold.
A share club of which Garry White is a member owns 955 shares in JP Morgan Indian Investment Trust.
James Fisher
497.6p +37½
Questor says Buy
Specialist marine group James Fisher unveiled a nice deal just two days after their recommendation. The shares were recommended as a buy in The Sunday Telegraph at 455p, because of their niche businesses in important maritime and defence markets.
On Tuesday, James Fisher said it had bought nuclear and aerospace engineer MB Faber for up to £5.25 in cash. There is an upfront payment of £4m plus a further £1.25m the unit hits a specific earnings target in the first year. Faber turned over £6.8m in 2008 and has net assets of £1.2m.
The purchase is a perfect example of what this company is about. It is a relatively small, highly-technical operation with important skills that can be sold at high margins.
Faber provides specialist electrical and engineering services to and it will be bolted onto the group's existing nuclear business. This is called James Fisher Nuclear and it designs and builds remote handling devices for nuclear decommissioning. Its products and services operate in harsh and hazardous environments and sells to gas and oil industries as well as nuclear.
The shares are trading on a December 12 earnings multiple of 11.5 times, falling to 10.7 in 2010. The yield, at 2.8pc, is not the most exciting in the market, but the company is expected to raise its dividend by double-digit percentage in each of the next two years.
The company has a marine services division that is not exposed to oil exploration, a market which is currently depressed, and there is cyclical upside available through its more traditional shipping arm, which has a coastal tanker fleet which can carry more than six million tonnes of refined oil a year.
Because the company operates in niche businesses, where high skills and expertise are requited, margins are usually in excess of 10pc.
The company is also applying its expertise in other markets. For example, its strain gauges, which measure tension in ships cables, are now being used on bridges.
The company is likely to continue to expand my making small bolt on purchases and the shares are a buy for future growth.