Capture India's growth at a discount with Aberdeen New India

"India grew 6 to 7 per cent in the last decade with a mere 3 per cent of its employable population paying taxes, 85 per cent of its economy untracked, banks having no hope of recovering assets gone bad and more than half of the population not having a bank account," say analysts at asset manager WisdomTree. "It is not difficult to guess how the country will grow after all these parameters change."

Aberdeen New India Investment Trust (ANII) aims to achieve long-term capital appreciation by investing in companies incorporated in India, or that derive significant revenue or profit from India. Over three and five years this trust has made share price returns of 49 per cent and 110 per cent respectively, beating its benchmark, MSCI India Index, which made 40 per cent and 84 per cent.

But despite the good performance the trust trades at a discount to net asset value (NAV) of 12.8 per cent, according to Winterflood Securities, as of 13 November. Although the discount to NAV has been wider than this in the past, if the good performance continues and India delivers on its growth potential, it could tighten.

The trust is also introducing a lower fee structure from April next year. The existing management fee of 1 per cent of net assets will be cut to 0.9 per cent of net assets up to £350m and 0.75 per cent of those above that. The trust currently has assets of about £307m so these changes could reduce its ongoing charge of 1.31 per cent.

Aberdeen New India is managed by an experienced team based in Singapore, led by veteran Asia investor Hugh Young, who has 30 years' experience. The team includes four other investment managers, Adrian Lim, Flavia Cheong, Kristy Fong and Pruksa Iamthongthong, who have been working together for more than 10 years.

Each investment manager does their own research and analysis, and is required to make the case for their investment suggestions to their colleagues. All must agree before a new investment is made.

Their investment process focuses on identifying quality companies they consider mis-priced, and these companies tend to be shareholder-friendly businesses with strong managements and balance sheets.

The trust is relatively concentrated, with 42 holdings. Its largest sector exposure is financials, which its managers believe should benefit from the growing wealth of India's middle class. The team typically invests in private sector rather than public sector banks, and the trust's 10 largest holdings include Housing Development Finance Corporation (HDFC:NSI) and Kotak Mahindra Bank (KOTAKBANK:NSI).

"The management team has developed an enviable track record with the application of its well‐established investment approach," say analysts at Winterflood. "We believe the emphasis on quality companies is sensible given the inherent risks associated with the Indian market."

Potential risks to the Indian market include a slowdown in growth as the economy absorbs the government's radical reforms, and share valuations in India remain relatively high. And if things don't go so well the trust's discount to NAV could widen rather than tighten.

However, the trust has demonstrated that it can successfully find good value regardless of high markets, while Indian government reforms are expected to lead to economic benefits over the long term.

So if you're prepared to lock your money away for a long time Aberdeen New India Investment Trust's experienced team and quality focus look like a good way to capture India's growth. Buy. EA

Aberdeen New India Investment Trust (ANII)

Source: Winterflood, *Aberdeen and **Morningstar.

Performance

Source: Winterflood as at 13/11/17

Top 10 holdings as at 30/09/17 (%)

Source: Aberdeen 

Sector breakdown as at 30/09/17 (%)

Source: Aberdeen