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Extra Article from October 2023 Newsletter: abrdn New India Investment Trust (ANII, 588p)

We met up with Kristy Fong from the abrdn Asian equities team in Singapore responsible for the management of abrdn New India. We would have to say that ANII has never really been a first port of call for us, and we have general reservations about investing in single-country trusts, but we were still keen to hear about the case for India at a time when we often hear that valuations are high.

ANII is a long-established trust approaching its twentieth anniversary and with nearly £400m of net assets, investing into the world’s most populous country. India has been a good place to invest over the last three years, outperforming broader emerging markets and certainly outperforming China. Kristy said that some investors pursue an ex-China strategy and highlighted the China concentration of some general emerging markets funds. Tencent and Alibaba do tend to be large holdings in many emerging markets trusts. Unfortunately ANII has not been the best way to capture those gains from India over recent times though, ranking bottom of the four specialist India trusts over one and three years, which has a lot to do with the traditional abrdn equity investing style, focusing on long-term holdings in mainstream large caps and quality companies that lagged in 2022 in particular. It has been the smaller and mid cap stocks that have really made the most headway of late, although they are now on higher ratings as a result and Kristy says “they look a bit frothy at the moment.” She emphasized that the managers care about downside risk as well as upside potential, and points to some natural conservatism.

This is evident too in the moderate net gearing level of 5.6% - Kristy says the trust is unlikely to be more aggressive – although the trust has recently asked shareholders for permission to invest up to 10% pf assets in private companies. We asked Kristy about this, as it struck us as a little incongruous, and she explained that in reality the percentage is likely to be far lower, and this flexibility relates mainly to pre-IPO companies where the trust can get early access with fair certainty that a company is seeking a listing, whereas it can be difficult to secure an allocation at the IPO itself. That makes sense.

In terms of market valuation, India’s premium to broader emerging markets has continued to widen, and Kristy said it is now one to two standard deviations above its historic levels. In part this can be explained away by some of the structural improvements that India has made, but Kristy did say “of course we can’t rule out a market setback,” particularly if confidence returns to China and causes a rotation of investor funds. There is also potential volatility to come from an election next year, although a continuation of the current status quo looks odds-on at present. For now, the trust is still finding good pockets of value in areas like banking, and Kristy talked about a gold jewellery company called Titan that continues to grow and represents a good consumer story.

We think ANII is probably a trust to watch rather than to buy now, after a strong showing by Indian equities, but it does trade on a comparatively wide discount of 19.2% and the trust also has a provision for a 25% tender offer if it underperforms over the five-year period to 31st March 2027. That may be a date for our future diaries.

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I too was looking for an alternative to China, as I saw how how China was performing as an economy and behaving as a nation and how Fidelity’s China Special Situations started out, but my foray into India via Terry Smith’s Fundsmith Emerging Markets proved unrewarding. I therefore sold out months before he decided to wind it up. I think I’ll remain on the fence with this one!

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