ANII outperformed the MSCI India benchmark in 2023…by Thomas McMahon

 

Overview

 
abrdn New India (ANII) offers exposure to the outstanding growth potential in India via a portfolio of predominantly large-cap, high-quality companies. Managers Kristy Fong and James Thom implement the long-standing process of the Asian Equities Team in the Indian market, looking for companies with strong balance sheets, sustainable earnings potential and good governance.

India has performed well in recent years, buoyed by significant reforms by the Modi government and geopolitical tensions between the US and China. A huge infrastructure spend is currently underway which is boosting companies providing materials for it, as well as those in the real estate sector, and ANII has benefited from positions in both industries over 2023, a year in which it outperformed the market (see Performance).

Whilst they are conscious of global economic challenges in the short term, on a three-to-five-year view, the managers have a very positive outlook for the market and have been broadening their holdings in the financials and industrials sectors to take advantage. They also note some exciting developments in the broadening of the Indian stock market to include more digital businesses and more in the renewable energy space.

ANII trades at a discount of 19% at the time of writing. The board has been active in buying back shares, whilst there is also a tender offer scheduled to be made in 2027 if performance targets are not met (see Discount), and a continuation vote to be held in the same year.

One reason for the discount is likely to be the disappointing medium-term Performance. However, we note that performance has tended to be weaker when the market has been led by companies of lower quality or poorer governance, which speaks to the efforts Kristy and James take to avoid the risks in these companies.

 

Analyst’s View

 

The Indian growth story is one of the most attractive investment opportunities in the emerging markets, in our view. It is striking that the real estate market has been healthy and GDP growth strong even whilst interest rates have been significantly hiked to tackle inflation. This speaks to the huge advantages India has: a young and educated workforce, a sophisticated stock market, and business culture operating in a better regulatory environment than in the past, and a strong geopolitical position which sees Western corporates keen to find alternative partners to China. Whilst Kristy and James are wary of valuations in the short term, they still see outstanding opportunities in certain sectors and companies for earnings growth over the medium term.

ANII’s quality-growth approach brings some defensiveness which we think could be attractive for a core holding. Whilst performance has been disappointing at times, much of this has been down to not holding companies of questionable governance standards. Nonetheless, ANII outperformed the index in 2023. We think the wide discount adds to the attractions at this point, with a tender offer possible in 2027 should the relative performance not improve.

 

Bull

 

  • ESG pedigree has proven its ability to add value
  • Bias towards quality provides defensive characteristics
  • Trades at a wide discount, with buybacks and tender offer to support the rating

 

Bear

 

  • As a single-country emerging market fund, it has higher political risk and volatility
  • Has underperformed over the medium term
  • Gearing can add to downside losses