India continues to shine as one of the brighter spots in the Asia-Pacific region. The economy is growing steadily, driven by well-known structural trends such as a booming real estate market, robust infrastructure development, and supportive public policies that have gradually reduced the cost of doing business. The stock market has also been performing exceptionally well, ranking among the best-performing emerging markets in recent quarters.
In the six months ended 30 September 2024, your Company's net asset value ("NAV") rose by 22.8% in sterling terms (total return), after adjustment for Indian capital gains tax accruals, continuing the strong turnaround witnessed in performance over the last 12 months. The Company's share price increased by 23.6%, resulting in a discount to NAV of 17.1%, an improvement on the figure of 20.5% at the end of March. I am pleased to report that, in addition to delivering strong absolute returns, your Company has also significantly outperformed the MSCI India Index (the "Benchmark"), which rose by 11.6% in total return terms. A further consequence of the Company's higher net assets at 30 September 2024, as compared to 31 March 2024, is a pleasing reduction in the ongoing charges from 1.00% to 0.94%.
While India has delivered impressive market performance, many investors are understandably concerned about valuations. Indeed, stocks do appear expensive in many market segments, particularly in the small-and-mid-cap space. However, your Manager remains optimistic, believing that in many cases these valuations are well-supported by earnings growth. Corporate India is in good shape, with good growth prospects, healthy balance sheets, low debt, and competent management teams, justifying the prevailing stock prices of high-quality companies including those held in your Company's portfolio.
Overview
The six months under review witnessed an unexpected election upset. Prime Minister Narendra Modi's Bharatiya Janata Party ("BJP") was compelled to form a coalition government after failing to secure an outright majority. Despite this, cabinet selection, where most of the major ministries remained with the BJP, indicated political continuity. This was further reinforced by a surprise victory for the BJP in the subsequent Haryana state election.
With further, important state elections on the horizon, any unforeseen defeats in those polls could magnify scrutiny of PM Modi's leadership of the coalition government. In the first budget announced by this new government, fiscal consolidation remained on track and capital infrastructure spending was robust. The government also introduced measures aimed at addressing gaps in the economy, particularly around consumption, rural demand, and employment.
Another key development was the US Federal Reserve's 0.5% rate cut in September, signalling a shift towards monetary easing in the world's largest economy. This move could provide a short-term boost to the Indian stock market and attract more foreign investment. Over the longer term, it is likely to prompt the Reserve Bank of India to follow suit with rate cuts which would lower borrowing costs, thereby supporting economic growth. India's economy grew by 8.2% in the fiscal year 2024, surpassing the previous year's rate of 7%. While growth has since moderated, on a quarterly basis, the outlook remains robust.
During the period, the Indian Rupee has been weak due to the strength of both Sterling and the US dollar, despite India's strong domestic fundamentals. With strong foreign exchange reserves, the Reserve Bank of India ("RBI") is well-equipped to intervene in the markets as needed. This capability allows the RBI to manage liquidity to contain excessive volatility and alleviate sharp depreciation of the rupee, thus ensuring stability.
Performance
Delving deeper into your Company's performance for the six months, I am pleased to report that the largest positive contributions to relative returns came from good stock picking in the energy, financials, and real estate sectors. Your Manager's off-benchmark investments in some of these sectors have paid off, as has the decision to avoid holding Benchmark bellwether Reliance Industries.
In particular, the investments in small-cap and-mid-cap stocks were among the top contributors over the six months. Financial services firm KFin Technologies, and energy company Aegis Logistics performed well. Anticipating structural opportunities, your Manager proactively increased the holdings of both companies, despite the inherent short-term volatility of such stocks.
The real estate sector, where the portfolio has a significant exposure compared to the Benchmark, once again emerged as a top contributor to your Company's outperformance. As I highlighted in the previous 31 March 2024 Annual Report, India is experiencing a long overdue recovery in residential property sales and the long-term prospects remain bright. Additionally, the portfolio's core telecommunication holdings in Bharti Airtel and its subsidiary Bharti Hexacom performed satisfactorily, supported by solid fundamentals. Following the elections in June, Bharti Airtel, along with other Indian telecom operators, raised mobile tariffs for the first time in three years, helping to boost topline growth. Further information on performance drivers and changes made to the portfolio during the six months is available in the Investment Manager's Report.
The Board and I remain confident in the Company's long-term growth potential. Your Manager has adapted the portfolio to prevailing market conditions while considering new ideas that are poised to benefit from positive structural trends.
Gearing
The Company's present bank facility, for up to £30m, is due for renewal in August 2025. At 31 March 2024, the Company had borrowed £26m of this facility but, in June 2024, £6.5m was repaid to leave £19.5m drawn down. While the Board considers that employing gearing, over the long term, contributes to returns for shareholders and is an important differentiating feature of investment companies, this is balanced against the higher cost of bank interest incurred.
Conditional tender offer
In March 2022, the Board announced the introduction of a five-yearly performance-related conditional tender offer. Following discussions with the Investment Manager, the Board decided that, should the Company's NAV total return underperform the Company's Benchmark over the five-year period from 1 April 2022, then shareholders should be offered the opportunity to realise up to 25% of their investment for cash at a level close to NAV. For these purposes, the Company's NAV per share was to be adjusted for Indian capital gains tax (the 'Adjusted NAV') to enable a like-for-like comparison with the Benchmark. The Board monitors the Company's performance and is pleased to report that, from 1 April 2022 to 30 September 2024, which marks the halfway point of the five-year measurement period to 31 March 2027, the Adjusted NAV total return was 48.3%, ahead of the Benchmark's total return of 41.1%.
Impact of Indian Capital Gains Tax
The Company, along with other investment vehicles, is subject to both short-term and long-term capital gains taxes in India on the growth in the value of its investment portfolio. These taxes are only paid when the underlying investments are sold and profits are crystalised, however, accounting standards require that funds accrue for any unrealised long term capital gains taxes. These accruals are deducted from the net asset value of the portfolio and therefore also affect the Company's performance figures. By contrast, taxes on unrealised capital gains are not accrued for or reflected in the Benchmark. Regrettably, the Indian Government increased the rates for capital gains tax in July 2024 which, added to the increase in the value of the investment portfolio over the period, has resulted in a significant increase in the tax accrual (see note 4 for further information).
Board
The Board was pleased to announce, on 20 November 2024, the appointment of Irina Miklavchich as a Director of the Company following a search conducted by an independent recruitment consultancy. Irina brings to the Board considerable and relevant investment management experience, with a particular focus on emerging market equities, including India.
Shareholder Engagement
The Board encourages shareholders to visit the Company's website (https://www.abrdn.com/en-gb/anii), other social media channels (including X, formerly Twitter, and Linked-In) for the latest information and access to podcasts, thought-leadership articles and monthly factsheets. The Board is seeking to improve the information available to shareholders and to encourage greater interaction. Further to this, the Board has supported the enhancement of the website, alongside more frequent updates by the Investment Manager.
Discount and Share Buybacks
The Board continues to monitor actively the discount of the Ordinary share price to the NAV per Ordinary share and pursues a policy of selective buybacks of shares where to do so, in the opinion of the Board, is in the best interests of shareholders, whilst also having regard to the overall size of the Company.
Over the six months, the discount to NAV narrowed from 20.5% to 17.1% as the Company bought back 1.8m Ordinary shares for holding in treasury, resulting in 50,299,638 Ordinary shares with voting rights and a further 8,770,502 shares held in treasury. Unfortunately, the discount remains volatile and was 20.3% as at 26 November 2024, the latest practicable date before approval of this Report.
The Board believes that a combination of stronger long-term performance and effective marketing communication should increase demand for the Company's shares and reduce the discount to NAV at which they trade, over time.
Outlook
India presents numerous compelling attractions for investors, some of which have already been highlighted. The country boasts favourable demographics, including a large, relatively young population and a growing middle class. Rising disposable incomes are driving consumption to become increasingly aspirational. Indian corporations are becoming more sophisticated, expanding their presence beyond its borders, and starting to compete on an international level.
However, investing in India requires accepting market volatility and a degree of risk. Some of the potential near-term challenges include a spike in global energy prices, due to heightened tensions in the Middle East and a slowdown in the global economy, where India is affected as a net oil importer. There also remains concern, from certain quarters, that valuations of Indian companies are high and this has been reflected to a degree in recent falls in the market.
President-elect Donald Trump's return to the White House in January 2025 increases uncertainty. While geopolitics remains a concern, India's international standing is comparatively robust, supported by strong ties with the US, Europe, and ASEAN. Moreover, India remains more insulated from global macroeconomic concerns due to its growing domestic economy.
Your Board is confident that your Manager has assembled a portfolio of high-quality companies with strong balance sheets that can profit from pricing power at each stage of the economic cycle.
Read the half yearly report here.
Read and download the latest Key information document (KID) here, or find it on abrdn New India Investment Trust’s website in the literature section, under key documents.
Investment objective
To achieve long-term capital appreciation by investing in companies which are incorporated in India or which derive significant revenue or profit from India, with dividend yield from the company being of secondary importance.
Cumulative performance (%)
| as at 31/10/24 | 1 month | 3 months | 6 months | 1 year | 3 years | 5 years | 10 years | |
|---|---|---|---|---|---|---|---|---|
| Share Price | 766.0p |
(5.0) | (6.1) | 2.1 | 34.9 | 25.4 | 60.3 | 151.7 |
| NAV (A) | 960.1p |
(1.3) | (2.7) | 7.7 | 34.5 | 35.7 | 72.3 | 187.4 |
| MSCI India | (3.6) | (4.7) | 4.2 |
26.5 | 39.8 | 94.4 | 191.3 |
Discrete performance (%)
| 31/10/24 |
31/10/23 | 31/10/22 | 31/10/21 | 31/10/20 | |
|---|---|---|---|---|---|
| Share Price | 34.9 | 2.2 | (9.0) | 32.1 | (3.2) |
| NAV (A) | 34.5 | (0.6) | 1.6 | 32.5 | (4.2) |
| MSCI India | 26.5 | (0.8) | 11.4 | 42.2 | (2.2) |
Total return; NAV cum income, with net income reinvested, GBP. Share price total return is on a mid-to-mid basis.
Dividend calculations are to reinvest as at the ex-dividend date. NAV returns based on NAVs with debt valued at fair value.
Source: abrdn Investments Limited, Lipper and Morningstar.
Past performance is not a guide to future results
(A) Including current year revenue.
Important Information
Risk factors to consider before investing:
- The value of investments, and the income from them, can go down as well as up and investors may get back less than the amount invested.
- Past performance is not a guide to future results.
- Investment in the Company may not be appropriate for investors who plan to withdraw their money within 5 years.
- The Company may borrow to finance further investment (gearing). The use of gearing is likely to lead to volatility in the Net Asset Value (NAV) meaning that any movement in the value of the company’s assets will result in a magnified movement in the NAV.
- The Company may accumulate investment positions which represent more than normal trading volumes which may make it difficult to realise investments and may lead to volatility in the market price of the Company’s shares.
- The Company may charge expenses to capital which may erode the capital value of the investment.
- Movements in exchange rates will impact on both the level of income received and the capital value of your investment.
- There is no guarantee that the market price of the Company’s shares will fully reflect their underlying Net Asset Value.
- As with all stock exchange investments the value of the Company’s shares purchased will immediately fall by the difference between the buying and selling prices, the bid-offer spread. If trading volumes fall, the bid-offer spread can widen.
- The Company invests in emerging markets which tend to be more volatile than mature markets and the value of your investment could move sharply up or down.
- Yields are estimated figures and may fluctuate, there are no guarantees that future dividends will match or exceed historic dividends and certain investors may be subject to further tax on dividends.