Kirsty Fong

In what was a turbulent six months the trust’s NAV increase was lower than its benchmark, the MSCI India Index, which generated 8.9%, in sterling total returns terms. The company’s share price total return was 2.8% over the period as the company’s share price discount to NAV widened as investors took a risk-off attitude.

While the portfolio delivered a positive absolute return, it lagged the benchmark as positive allocation did not fully offset negative stock selection.

The trust’s senior investment directors, Kristy Fong and James Thom said: “The portfolio’s core, well-capitalised holdings in ICICI Bank and Kotak Mahindra Bank outperformed in a rising interest rate environment and amid expectations of an improving credit cycle.

“Both lenders delivered good results that were underpinned by healthy loan and fee-income growth. Among insurance names, SBI Life Insurance also outperformed after posting strong quarterly results that demonstrated insurance premium growth and margin uplift, driven by improvements in the company’s product mix and through good execution from management.”

Ms Fong and Mr Thom continued: “On a positive note, Aberdeen New India Investment Trust’s underweight position to the energy sector was also the biggest contributor to relative returns. Global energy prices came under pressure as even a relatively strong US dollar could not compensate for investors’ mounting fears over a global recession and its impact on energy demand.

“The Company’s exposure to oil and gas logistics company, Aegis Logistics staged a strong share price rebound during the period on robust gas distribution sales. Meanwhile, the portfolio’s more defensive holdings, particularly in the consumption sectors, fared well despite increasing volatility in the market.

“The share price of Hindustan Unilever, the largest, fast-moving consumer goods company in India, recovered from its March lows with resilient margins, thanks to a strong balance sheet, wide distribution channels and its ability to pass on costs. A benign monsoon and the festival season further supported solid demand growth. Likewise, Crompton Greaves Consumer Electricals also saw its share price rise on resilient demand, which added to the Company’s relative gains.”

Outlook

Aberdeen New India Investment Trust PLC’s new chairman, Michael Hughes said: “A relatively high pool of foreign currency reserves and low levels of public debt leave India’s central bank and its government in a good position to withstand any further macroeconomic shocks.

“Over the longer term, India’s attractiveness remains intact. As one of the largest consumer markets outside the US and China, India has a predominantly young population. The middle class is expanding, accumulating more wealth and enjoying higher levels of disposable income.

“Business-friendly policies facilitate opportunities for domestic corporations and multinational companies alike. After performing below its potential over the last decade, due to a multitude of painful but necessary reforms, together with the effect of the pandemic, India is poised for a cyclical rebound.

He continued: “A promising development is the relocation of manufacturing operations to India by an increasing number of multinational corporations. The country’s desire to become a global manufacturing hub is well-known.

“This has been promoted by the ‘Make in India’ campaign to incentivise companies to relocate through business-friendly polices such as production-linked incentive schemes, favourable corporate tax rates and the repealing of a controversial retrospective tax law. For example, Apple has decided to manufacture its new iPhone 14 at Foxconn’s Sriperumbudur factory just outside Chennai.

“Such investments demonstrate important steps along India’s path towards becoming the third-largest economy and stock market in the world by the end of the decade. Insulated more than other countries from prevailing geopolitical complications, this all points to India being on a healthier footing versus other emerging markets.”

James Thom

Ms Fong and Mr Thom added: “India remains one of the fastest-growing countries in the world, and is expected to deliver one of the highest earnings growth stories this year, supported by a pro-growth budget for the 2023 fiscal year.

“With the Covid-19 pandemic under control, India’s economy is showing signs of recovery: credit growth is accelerating, the real estate market is seeing momentum, infrastructure is being built and consumer spending is gradually improving.

“Some of the domestic headwinds, including rising inflationary pressure, appear to have moderated slightly in recent months.

“That said, prices remain above the central bank’s upper tolerance limit, and if interest rates continue to rise, it would eventually have the effect of weighing on the consumption recovery trend.

“Further, international developments, including the potential onset of a global recession, as well as geopolitical escalations would have an impact and test the resilience of the domestic economy.”

In conclusion, they said: “We expect our core quality holdings to continue to deliver resilient compounding earnings growth over the medium term, come what may in terms of macro conditions.

“The consistency of earnings growth within the portfolio remains healthy and fundamentals, including pricing power, strong balance sheets and the ability to sustain margins, remain solid.

“We maintain confidence in the experienced management teams in place at these companies and in time expect these factors to once again be reflected in favourable share price performance.”