Aberdeen New India 01 February 2022

Aberdeen New India (ANII) is the top-performing of the three specialist India funds with a ten-year track record. The management team’s focus on finding quality companies has proven helpful in falling markets and contributed to this long-term success, as we discuss under Performance. The trust lagged the market in 2021, however, with the focus on quality not being rewarded as the market rallied.

ANII is managed by Kristy Fong and James Thom of the abrdn Asian Equities Team. The strategy is entirely bottom-up, with the managers not aiming to read the economic cycle but to find resilient companies with strong balance sheets and low levels of debt which can grow over multiple cycles. This means the NAV beta to the market tends to be low, although this is raised by modest but quite consistent levels of Gearing.

The portfolio is diversified across a variety of old and new economy sectors. Particularly important are the positions in financials (mainly banks) and information technology. Kristy and James see structural trends supporting earnings growth in these industries over the long term. Both benefit from India’s early stage of economic development when compared to China. In the short term banks have lagged the market, and Kristy and James have been adding to exposure further. They highlight market returns in 2021 were very concentrated in certain stocks and sectors, and they expect this to broaden in 2022. Furthermore, while the defensive qualities in the portfolio may have held back ANII in 2021 relative to the market, over the long run they believe this is the best way to invest – with supporting evidence being the trust’s excellent long-term track record.

We think the long-term fundamentals are exciting for India. Speaking to Asia fund managers, it is striking that India repeatedly comes up as an opportunity. Its demographics are stronger than China, its labour is cheaper than China, and it is winning business from multinationals concerned about exposure to China. The reforms implemented by the Modi government have also had a real impact. India has been one of the top ten improvers in the World Bank’s Ease of Doing Business Rankings for three consecutive years.

ANII’s Discount therefore looks attractive to us, purely as a way to access the growth potential in the market itself. The long-term track record of alpha generation is a bonus. As regards the outlook for relative performance, as we discuss in the Performance section, the key factors behind the sluggish performance in recent years don’t look like persistent issues to us. We think the quality style could be set to do better in the post-pandemic recovery, although of course there is no guarantee of this. There are risks to the global economy too, and India is not immune. High energy prices hurt the country, as it imports all its oil, while food price inflation would harm the consumer. ANII’s relative defensiveness should hold it in good stead if the market stumbles and so we think notwithstanding the modest Gearing, ANII looks like a relatively low risk way to invest in this potentially exciting market.