Aberdeen New India trust underperforms benchmark with key misses

The Adani Group, a conglomerate focusing on transport logistics and utilities, was identified as a key culprit for the trust’s underperformance of the benchmark.

Managers Kristy Fong and James Thom said that the trust avoids investing in Adani firms, due to “their weak financial track records, highly over-leveraged balance sheets and major ESG concerns,” even as the stocks have seen strong overperformance in recent months.

The managers said that Adani had “contributed to over half of the portfolio’s relative underperformance of the benchmark over the six months.”

The trust saw NAV grow by 5.9% in the six month period, compared to a share price growth of just 2.8% and the MSCI India index growing by 8.9%.

Gearing on the trust had increased slightly, from 5.5% to 5.7%, with a £30m loan from RBS in August.

Overall, the trust’s discount had widened from 19.4% to 21.7%

Fong and Thorn also highlighted the underperformance of Azure Power Global, which had seen “a series of increasingly concerning events” which culminated in the trust’s “rapid exit” from the stock.

The firm had been plagued with problems around late filing of the annual financials, an abrupt resignation of the recently appointed CEO and a whistle blower coming forward, the managers said.

The global hit in technology had also impacted the portfolio, as the overweight exposure of the trust to the sector has dampened performance. Nevertheless, the managers said that despite-near term challenges, India’s tech sector remains attractive due to “robust demand for knowledge-based IT services”.

On the other hand, the managers said that the decision to not hold “bellweather” Reliance Industries was a rewarding one, after it saw poor performance, while the trust’s defensive holding proved worthwhile.

New additions to the portfolio included Delhivery, which the managers described as “the largest, fastest-growing and fully integrated logistics player in India,” as well as industrial manufacturer ABB India.

Meanwhile, the trust divested from Zomato and Star Health and Allied Insurance, while also selling Azure Power.

Fong and Thorn noted that Indian equities had been one of the few markets to remain in positive territory, with the size of the domestic economy providing “a buffer” against weakening global demand.

Looking ahead, the trust said that that India’s prospects look resilient in the face of macroeconomic uncertainty, with a relatively high pool of foreign currency reserves and low levels of public debt.