11/07/2024 - Aberdeen New India Investment Trust plc: Annual Report

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abrdn New India Investment Trust plc

Annual Report 31 March 2024

Seeking world-class, well governed companies at the heart of India's growth

abrdnnewindia.co.uk

The Company invests in Power Grid Corporation of India, which expects to benefit from the country's rural electrification programme.

"India's prospects are bright. The economy is the fastest-growing among its peers."

Michael Hughes, Chairman

"The key to taking advantage of this market's promise is picking quality stocks, backed by fundamental research, which aligns well with how we invest."

Kristy Fong and James Thom

Investment Manager

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abrdn New India Investment Trust plc

1

Why invest in India?

Aspiration

India's population is the largest in the world with an expanding middle class which will drive consumption growth

Building India

Urbanisation and infrastructure development have multiplier effects for job creation and the wider economy

Renewables

India has committed to meeting half of its energy needs from renewable sources by 2030, thereby reducing its dependence on imported fuels

Domestic opportunities

Global businesses are investing in and shifting production to, India, drawn by a wealth of incentives and opportunities

Exporting talent

India's giant tech services sector, built on a highly educated and diligent workforce, drives the export of services by helping global companies keep pace with the fast-changing tech innovation landscape

Digitalisation

India has made immense progress in digital investments, which will underpin its rise to be one of the largest global economies by the middle of this century

Why invest in abrdn New India Investment Trust plc?

Robust financial strength and sustainable competitive advantage

Indian companies meeting a 'quality' threshold are included in the portfolio, displaying both strong financial characteristics and a consistent competitive advantage in attractive industries or sectors

Quality Management

The management of the best companies in India is world-class and understands the importance of good governance to drive the best outcomes for investors and other stakeholders. Quality of management is a key attribute sought in portfolio companies

Return of growth stocks

As interest rates peak globally over the medium term, investors will seek out growth stocks which are set to benefit from this. The portfolio's focus on those Indian companies with the desire and capacity to expand will drive performance

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abrdn New India Investment Trust plc

Financial Highlights and Performance

Financial Highlights

31 March 2024

31 March 2023

% change

Equity shareholders' funds (net assets)

£427,054,000

£357,919,000

+19.3

Market capitalisation

£339,744,000

£285,747,000

+18.9

Share price (mid market)

652.00p

512.00p

+27.3

Net asset value per Ordinary shareA

819.56p

641.32p

+27.8

Discount to net asset valueA

20.4%

20.2%

Net gearingA

4.1%

5.8%

Total return per share

168.85p

(60.00p)

Operating costs

Ongoing charges ratioA

1.00%

1.09%

  1. Considered to be an Alternative Performance Measure. See pages 78 and 79 for further information on the one year percentage return.

Performance (total return, in Sterling terms)

1 year

3 year

5 year

10 year

% return

% return

% return

% return

Share priceA

+27.3

+20.3

+41.8

+190.4

Net asset value per Ordinary shareA

+27.8

+30.7

+54.4

+211.6

Adjusted net asset value per Ordinary shareA

+31.9

N/A

N/A

N/A

MSCI India Index (sterling adjusted)

+34.4

+56.6

+81.0

+238.2

  1. Considered to be an Alternative Performance Measure. See page 80 for further information on the 1 year % return. Source: abrdn plc, Morningstar & Lipper.

Overview

Strategic Report

Portfolio

General Corporate Information Financial Statements Governance

abrdn New India Investment Trust plc

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Contents

Overview

Financial Highlights and Performance

3

Strategic Report

Chairman's Statement

6

Investment Manager's Report

9

Investment Case Studies

11

Overview of Strategy

13

Promoting the Success of the Company

19

Performance

21

Portfolio

Top Ten Investments

23

Portfolio

24

Sector Analysis and Sector Allocation

26

Currency Analysis

27

Governance

Board of Directors

30

Directors' Report

32

Statement of Corporate Governance

39

Audit Committee's Report

40

Directors' Remuneration Report

44

Statement of Directors' responsibilities in respect of the

Annual Report and financial statements

47

Independent Auditor's Report to the Members of abrdn

New India Investment Trust plc

48

Financial Statements

Statement of Comprehensive Income

55

Statement of Financial Position

56

Statement of Changes in Equity

57

Statement of Cash Flows

58

Notes to the Financial Statements

59

Alternative Performance Measures

78

Alternative Investment Fund Managers Directive

Disclosures (unaudited)

81

Corporate Information

Information about the Investment Manager

83

Our Investment Manager's Responsible Investment

Process

85

abrdn's ESG Engagement

86

Investor Information

90

General

Notice of Annual General Meeting

94

Glossary of Terms

99

Additional Shareholder Information

101

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abrdn New India Investment Trust plc

Strategic

Report

The Company invests in KEI Industries, a manufacturer and distributor of cables and wiring across India.

abrdn New India Investment Trust plc

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Chairman's Statement

Dear Shareholder

In the Half-Yearly Report, I highlighted how India's impressive performance continued to defy a global environment rife with volatility. Since then, the country's upward trajectory has persisted - its stock market continues to be one of the best performing markets while the economy is the fastest-growing among its peers.

In order for the Company to take best advantage of these positive markets, the Board has embarked on a number of initiatives over the year ended 31 March 2024:

  • encouraging the Manager to more proactively consider mid-cap stocks representing a greater proportion of the portfolio, while still preserving its investment philosophy with its focus on quality and growth characteristics. In response, the Board has noted that the Manager has extended its analyst coverage, with deeper knowledge of the mid-cap sector;
  • supporting the Manager in taking more active positions in stocks in which it has the most conviction; and
  • at the AGM in September 2023, putting forward a resolution to permit the Company to invest up to 10% of net assets into pre-IPO investments, which was overwhelmingly supported and, as a result, the Manager will pursue opportunities where feasible.

Alongside these developments, the Board initiated a higher level of share buy-backs when necessary, and sought the more regular update of the Company's website (www.abrdnnewindia.co.uk), featuring additional webcasts and articles on India as the nation holds a general election involving over 1 billion voters.

The Board expects shareholders to benefit from these developments in due course, against a background also of a lower management fee implemented from

April 2023 onwards.

Overview

India's prospects are bright and the current buoyant mood on the ground is in sharp contrast to the prevailing global sentiment of caution and uncertainty. The economy is expanding at an annual rate above 7%, playing catch-up after a period of sub-par growth before the pandemic. This accelerating growth story is backed by encouraging macroeconomic trends, including a real estate boom, a robust infrastructure capex cycle and manageable levels of inflation. Interest rates appear to have peaked for now, barring any unexpected shocks to the economy, as the Reserve Bank of India has not announced any policy moves since February 2023.

The rise in public spending to fund critical infrastructure projects - such as building more roads, railways and ports

  • has been a crucial spur to economic development in recent years, providing a solid foundation for sustainable growth. These projects have been designed to both create new jobs and encourage the revival of a private capex cycle which is now in its early stages and will help to sustain growth in the economy and in corporate earnings. As outlined in the Government's Interim Budget, India plans to spend another US$134 billion (£107 billion) on infrastructure alongside a renewed focus on long-term reforms. This is welcome news for India's capex-sensitive sectors such as capital goods and building materials where your Manager has re-positioned the portfolio by introducing new, high-quality names and adding to existing holdings.

The recent election result was a surprise and is discussed in more detail in the Investment Manager's Report on page 9.

Performance

Over the year ended 31 March 2024, the Company's net asset value ("NAV") rose 27.8% in sterling terms (total return), marking a sharp turnaround from the previous 12 months. The Company's share price was up 27.3% while the discount to NAV of 20.4% was almost unchanged from that at March 2023. I am pleased that the Company has delivered strong absolute returns, albeit the riskier MSCI India Index (the "Benchmark") outperformed, rising 34.4% in total return terms.

The Manager is working hard to improve performance both in absolute and relative terms and is confident that the underlying fundamentals of the portfolio remain sound, and our holdings continue to report healthy earnings progression.

Looking at your Company's performance during the year in more detail, the largest positive contribution to relative performance came from property. The portfolio has a large exposure to this sector, compared to the Benchmark, as India is undergoing a long overdue recovery in residential property sales, and the long-term prospects remain bright. It is pleasing to note that your Manager's decision to proactively pivot the portfolio towards industrial names and likely beneficiaries of large- scale public spending is starting to pay off.

Two other key developments influenced portfolio returns. Firstly, a liquidity deficit in the Indian banking system at the start of 2024 prompted concerns among investors over near-term loan growth and margin pressure for lenders. This affected the share price performance of HDFC Bank, which remained weak. The other issue has been the

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abrdn New India Investment Trust plc

uneven recovery in consumption where urban demand has returned strongly while rural consumption remains relatively soft. This development weighed on the Company's core consumer staples holding - Hindustan Unilever. Our expectation is that there is room for both fiscal and monetary policy support by the Government to resolve these issues, noting the overall health of the banking sector remains strong. While HDFC Bank and Hindustan Unilever disappointed due to these challenges, they both remain high-quality businesses that are intrinsically linked to India's future prosperity.

The Board and I continue to have faith in the Company's long-term growth potential. Your Manager is adapting the portfolio to market conditions while considering new ideas that will benefit from positive structural trends. Further detail on the drivers of performance and changes made to the portfolio during the year may be found in the Investment Manager's Report on pages 9 and 10.

Manager Change

After involvement with the Company for nearly 20 years, Kristy Fong is stepping down as Co-Investment Manager in September 2024. James Thom becomes the lead Investment Manager, assisted by Rita Tahilramani. The Board thanks Kristy for her stewardship of the Company's investment portfolio and wishes her well.

Conditional tender offer

In March 2022 the Board announced the introduction of a five-yearlyperformance-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 is adjusted for Indian capital gains tax (the "Adjusted NAV") to enable a like-for-like comparison with the Benchmark.

The Board keeps the Company's performance under review and, over the first two years of the measurement period from 1 April 2022 to 31 March 2024, the Adjusted NAV total return was 20.7% versus the Benchmark's total return of 26.4% (please see the Alternative Performance Measures on page 80 for further information).

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, while also having regard to the overall size of the Company.

Over the year ended 31 March 2024, the Company bought back into treasury 3,702,011 (2023 - 2,127,206) Ordinary shares, representing 6.6% (2023 - 3.7%) of the issued share capital (excluding treasury shares) at the start of the year, a considerable step up in buyback activity. At 31 March 2024, there were 52,107,910 (2023 - 55,809,921) shares in issue with voting rights and an additional 6,962,230 (2023 - 3,260,219) shares held in treasury. Between the year end and 13 June 2024, the latest practicable date prior to approval of this Report, a further 564,198 shares were bought back into treasury resulting in 51,543,712 shares in issue with voting shares and 7,526,428 shares held in treasury.

The Board believes that a combination of stronger long- term investment performance and effective marketing should increase demand for the Company's shares and reduce the discount to NAV at which they trade, over time.

Gearing

As at 31 March 2024, £26 million (2023 - £30m) had been drawn from the £30m bank loan provided by Royal Bank of Scotland International, which resulted in net gearing of 4.1% (2023 - 5.8%). During the year, this gearing had a positive impact on returns, though the Board and Manager are conscious of the increased interest cost of gearing, so keep the level of gearing under regular review. The ability to gear is one of the advantages of the closed ended company structure and your Manager continues to seek opportunities to deploy this facility for the benefit of shareholders.

Impact of Indian Capital Gains Tax

The Company, along with other investment vehicles, is subject to both short and long term capital gains taxes in India on the growth in value of its investment portfolio, which become payable when underlying investments are sold and profits crystallised. Where investments are valued at a profit, but not yet sold, the Company must accrue for the potential capital gains tax payable, which amounted to £19.4 million (2023 - £11.1 million) at

31 March 2024, equivalent to a reduction in the NAV per share of 37.2p or 4.5% at 31 March 2024 (2023 - 20.0p or 3.1%).

Overview

Strategic Report

Portfolio

General Corporate Information Financial Statements Governance

abrdn New India Investment Trust plc

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Chairman's Statement

Continued

Shareholder Engagement

The Board encourages shareholders to visit the Company's website (www.abrdnnewindia.co.uk) for the latest information and monthly factsheets as well as accessing podcasts and thought-leadership and macro research articles published by the Manager.

Annual General Meeting

The Company's AGM will be held at 18 Bishops Square, London E1 6EG at 12.30pm on Friday 20 September 2024. The AGM provides shareholders with an opportunity to ask any questions that they may have of either the Board or the Investment Manager. Voting on the resolutions to be put to shareholders will be conducted by way of a poll and those attending are encouraged to bring with them a letter of corporate representation in respect of their ownership of shares in the Company.

I look forward to meeting as many of you as possible over refreshments which will follow the AGM. Shareholders, whether attending the AGM or not, are encouraged to submit questions for the Board and/or Investment Manager, in advance, by email to new.india@abrdn.com.

Online Shareholder Presentation

In order to encourage and promote interaction and engagement with the Company's shareholders, the Company is holding an interactive Online Shareholder Presentation (the "Presentation") at 11.00am on Thursday 12 September 2024, to cater for those shareholders who may be unable to attend the AGM. During the Presentation, shareholders will receive a short introduction from the Chairman and portfolio update from the Investment Manager, followed by an interactive question and answer session. The Presentation is being held ahead of the AGM in order to allow shareholders to submit their proxy votes prior to the meeting. Further information on how to register for the Presentation may be found on the Company's website (www.abrdnnewindia.co.uk).

Update

I am pleased to report that your Company has performed extremely well since the year end with total returns for the NAV of 14.7% compared to 6.0% for the Benchmark from 31 March 2024 to 10 June 2024 (the latest practicable date prior to approval of this Report).

Outlook

India's economy is the fastest-growing among its peers and the country offers favourable demographics: a large, relatively young population and a growing middle class. Indian corporations are becoming more sophisticated, with many competing at an international level. Economic conditions remain buoyant with supportive policymaking from the Government and Reserve Bank of India, while the capex cycle and infrastructure spending should help to sustain momentum. Indian companies are also benefitting as multinational corporations diversify their supply chains to reduce their reliance on China. From a global perspective, India enjoys more geopolitical stability compared to other emerging market countries with tensions between the United States and China remaining high.

Investing in India, however, means accepting market volatility, particularly as high growth rates in corporate earnings come with high valuations. This is particularly true in small and mid-cap stocks; these do not form the core of our portfolio although they are included in it to ensure that shareholders benefit over the medium-to-longer term.

Your Board is confident that your Manager has assembled a portfolio of high-quality, resilient companies that possess strong balance sheets and can profit from pricing power at each stage of the economic cycle.

Michael Hughes

Chairman

13 June 2024

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abrdn New India Investment Trust plc

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Disclaimer

Aberdeen New India Investment Trust plc published this content on 11 July 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 11 July 2024 09:55:24 UTC.

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