Dear Shareholder

This is my first statement as Chairman of the Company following Hasan Askari’s retirement at the Annual General Meeting on 28 September 2022. I should like to thank him for his leadership over ten years, together with Stephen White, who also stepped down, for their valuable contributions to the Company. Stephen’s successor as Chairman of the Audit Committee is Andrew Robson, who was appointed as a Director of the Company on 1 August 2022, while David Simpson succeeded me as Senior Independent Director. Rebecca Donaldson has been appointed Chairman of the Management Engagement Committee.

Performance

In a turbulent six months ended 30 September 2022, your Company’s net asset value (“NAV”) increased by 5.9% in total return terms. By comparison the MSCI India Index,  the Company’s Benchmark, 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. 

The Investment Manager’s Report (also available in the interim report and on the Insights page of this website) provides details on the portfolio’s performance and how the Investment Manager is adapting to changing market trends, including finding opportunities where valuations of stocks appear overly low.

It is worth stating that, over the six months, one corporate group has had a sizeable impact on the Company’s relative underperformance. The Adani Group of companies has dominated market returns in 2022, but the Company avoids holding Adani stocks as they fail to meet your Investment Manager’s stringent quality criteria. Performance was also held back by the exposure to Azure Power Global, which saw its value decline due to a series of events which severely undermined market confidence. Delays in filing financial statements, a whistle-blower report and the subsequent resignation of the (still new) CEO, led the Investment Manager to sell the stock. This was an unfortunate and unexpected outcome considering the comprehensive due diligence undertaken prior to purchase. On a positive note, your Investment Manager’s decision to avoid industry bellwether  Reliance Industries proved rewarding, while your Company’s defensive quality stocks in sectors such as consumer staples performed well against a volatile market backdrop. 

Environmental, Social and Governance

I am pleased to note that the Company’s portfolio was recently rated “A” under the MSCI ESG Rating. This reflects well on your Investment Manager’s consistent efforts to engage with the companies held within your Company’s portfolio and efforts to drive improvements on various issues. More details on your Investment Manager’s ESG process can be found in the Investment Manager’s Report and Case Studies in the interim report and on this website, as well as in the latest Annual Report. A Sustainable Investment Report is also published every six months and is available at: aberdeen-newindia.co.uk.

Gearing

The Company announced on 5 August 2022 that it had entered into a new £30 million three-year bank loan facility (the “Facility”) with The Royal Bank of Scotland International Limited (London Branch), which expires in August 2025. At 30 September 2022, the Facility was fully drawn down (31 March 2022 - £30 million drawn down), which resulted in net gearing of 5.7% (31 March 2022 - 5.5%). The ability to gear is one of the advantages of the closed ended company structure and your Investment Manager continues to make use of this Facility in seeking to add value.

Conditional tender offer

On 24 March 2022 the Board announced the introduction of a five-yearly performance-related conditional tender offer. The Board was concerned about the relative underperformance of the Company’s NAV, as compared to its Benchmark. 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 per cent of their investment for cash at a level close to NAV. For these purposes, the Company’s NAV per share will be adjusted for Indian capital gains tax (the “Adjusted NAV” – for further information see page 28 of the interim report) to enable a like for like comparison with the Benchmark. The Board monitors closely the performance of the Company’s portfolio and over this short period since 1 April 2022 to 30 September 2022 the Adjusted NAV has increased by 6.0% versus the Benchmark’s increase of 8.9% (further details are on  page 28 of the interim report).

Shareholder Engagement

The Board encourages shareholders to regularly visit the Company’s website (aberdeen-newindia.co.uk) or other social media channels 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 under review, the discount to NAV widened from 19.4% to 21.7%. The Company bought back into treasury 559,372 Ordinary shares (year ended 31 March 2022 - 448,201 shares), resulting in issued share capital of 57,337,755 Ordinary shares with voting rights and an additional 1,732,385 shares in treasury. Between the period end and the date of this Report a further 575,672 shares were bought back into treasury resulting in 56,762,083 shares in issue with voting shares and 2,308,057 shares held in treasury.

The Board believes that a combination of stronger longterm 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

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. 

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 businessfriendly 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.  

The Board appreciates the Investment Manager's ability to identify quality companies that will benefit from favourable long term trends but is also keen to ensure that new opportunities within the Indian market are not overlooked. The Board is very conscious that the Company’s recent performance has not matched its longer-term record and we are engaging actively with the Investment Manager on this issue.

 

Michael Hughes

Chairman

2 December 2022

 

Discrete performance (%)

Total return; NAV to NAV, 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.

Important information

Risk factors you should consider prior to 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.

Other important information:

Issued by abrdn Fund Managers Limited, registered in England and Wales (740118) at 280 Bishopsgate, London EC2M 4AG. abrdn Investments Limited, registered in Scotland (No. 108419), 10 Queen’s Terrace, Aberdeen AB10 1XL. Both companies are authorised and regulated by the Financial Conduct Authority in the UK.

Find out more at www.abrdnnewindia.co.uk or by registering for updates. You can also follow us on social media: Twitter and LinkedIn.