Jyske Invest Indian Equities

Market Comments, Q1 2012

Excellent start to 2012 for Indian equities

Review

Indian equities had an excellent start to 2012. The fund generated a total return of 19.65%, slightly below the benchmark return of 20.27%.

The portfolio return was mainly driven by auto makers, commodity companies, banks and industrial companies while more defensive shares underperformed the market. One of the star performers of the quarter, Sobha which builds high-end homes near the major cities, increased by almost 80%.

The optimism was mainly a result of global factors. The main drivers in the first quarter were:

1. better economic indicators, mainly from the US where banks and the housing and labour markets are recovering;
2. a solution/postponement of the Greek debt crisis involving a haircut accepted by private investors;
3. reasonable financial statements from Indian companies which were generally without major surprises, neither to the upside nor to the downside.

January was explosive, February was excellent, but since growth indicators, particularly in China and Europe, disappointed, the equity market declined in March. Defeat for the Congress Party at the federal state elections in Uttar Pradesh and Punjab also added to the poor sentiment.

Several analysts had hoped for an interest-rate cut in March by the Indian central bank, RBI, but it was long in coming. According to the central bank, the problem was that the government budget was too expansive to act as a damper on the high rate of inflation. It left no room for interest-rate cuts.

Outlook

Several factors may contribute to a continuation of the good sentiment in the second quarter:

• the valuation of notably small and cyclical shares is attractive;
• economic growth is still on the increase in India – boosted by very solid private spending;
• the Indian economy is more domestically oriented than many of the smaller Asian markets which are export oriented. Other things being equal, this means that India is less dependent on Europe than other Asian markets.

But some special characteristics may affect Indian equities adversely:

• government debt is high. This has not yet been a major theme since the financing is domestic, but it may potentially turn out negative;
• India is considered a risky market and the currency is floating. Both result in wide fluctuations when investors seek a safe haven.

Please note

Past performance is not a reliable indicator of future results. The value of and return on your investment may fall, and you may not get back the full amount invested. Investment in small and emerging markets may prove more volatile than investment in other markets. An initial charge is usually made when you purchase and sell units. The fund may invest in instruments denominated in various currencies. You should be aware that changes in exchange rates may have an adverse effect on your investment. This may also be the case if USD is not your base currency.

Information in this text should not be regarded as investment advice, and investors should consult their own investment and tax advisers before buying or selling.