Aberdeen New India 03 August 2022

Aberdeen New India (ANII) is managed by Kristy Fong and James Thom who take a bottom-up approach to stock selection with the aim of delivering long-term capital growth. Their focus is on identifying quality companies – those that have strong balance sheets, low levels of debt and that can demonstrate sustainable earnings growth over the long term. They place strong emphasis on management teams that adhere to ESG principles as they believe that this is a measure of quality in itself. Over the years, Kristy and James have aligned the Portfolio to the many long-term secular drivers of growth they see in India, such as its strong demographics and rising incomes. Financials and technology are the two largest sector exposures which are seen as being key beneficiaries of India’s development.

The trust has a strong track record of performing relatively well in past years when the market fell. However, in 2022, investors have rewarded cyclical and value investment strategies. Kristy and James take the view that with fears of recession and inflation haunting markets, the quality focus of their strategy should demonstrate better resilience in the coming weak economic environment.

ANII trades at a wide Discount of 18.5%, perhaps owing to underperformance in recent years and some risk-off sentiment after commodity price spikes caused by the Ukraine war. The board has introduced a five-year tender offer for 25% of the shares, the clock starting from 01/04/2022, alongside a five-year continuation vote which has yet to be approved by shareholders.

We believe that the investment case for India is strong, driven by several structural tailwinds including a growing population and an educated labour force with rising income levels. In turn, this is leading to growing consumerism, creating new markets in many industries especially amongst financials and the technology sector. The Modi government has introduced reforms to the tax and legal system and, with its pro-business stance, India is improving rapidly as a place to do business according to the World Bank’s Ease of Doing Business Rankings. India is at an earlier stage of its development than China and its economic growth rate is projected to remain high for some years ahead. Increasingly, multinationals are looking at India as a location to set up local plants as an alternative to China, attracted by the cheaper cost of labour and lower geopolitical risks.

Quality investment strategies have underperformed since the pandemic, however we believe that ANII’s bias towards quality companies could make the portfolio more resilient to downside market moves. The Portfolio is diversified across new and old economy stocks but also aligned to sectors that are set to benefit from India’s long-term development towards a consumer economy. The latest market wobble has pushed ANII to trade close to a 20% discount and we view this as an attractive discount with which to gain exposure to the Indian growth story. A new tender offer and continuation vote will provide a long-term backstop to the rating.