The India Fund, Inc. (IFN) - June 2025

Join Mike Taggart, Aberdeen's Head of Closed-End Fund Investor Relations, and James Thom, a portfolio manager for IFN to learn about the current equity market in India. 

Transcript

The India Fund, Inc (IFN)

Podcast Transcript

June 2025

Mike Taggart: Welcome to the latest podcast for the India Fund, ticker symbol IFN. I'm Mike Taggart, Aberdeen's Head of Closed-End Fund Investor Relations with me is James Thom, a portfolio manager for IFN. James, thank you for taking the time to talk about IFN.

James Thom: Hi, Mike. Great to be with you. 

Mike Taggart: So, the Indian equity markets have been on a bit of a rollercoaster the past 12 months. Would you please bring us up to speed and share Aberdeen's outlook for India? 

James Thom: Yeah. You're right that, the the Indian market, after three years of pretty much continual gains, finally kind of capitulated in the early part of the fourth quarter last year. And, and that's been a more volatile period through 2025, year to date period.

As as it has been for for many markets globally, given the, the macro backdrop and, all the trade and geopolitical concerns and tensions, and India has been no exception. I would say that the one thing that is a little bit different for India is that economic growth had been extremely robust for, a number of years.

And that, economic cycle peaked out, at the end of last year. And we have seen a slight contraction in growth. I mean, it's still extremely healthy and by global standards, very high growth. So when I say it's contracted, it's gone from sort of 7% to 8% GDP growth to, you know, 6%, 6.5% GDP growth. But but nonetheless there's been that kind of relative pullback and that has been reflected in the market.

And that's been driven more, less to do with the sort of external environment, more to do with the domestic environment. Liquidity has got a bit tight. Central Bank had been both defending the currency against the stronger US dollar, but also trying to just curb some of the excesses in some of the, unsecured retail lending areas. So quite prudent policy. But that did just put the brakes on. And I think what we've seen now into the outlook and your question, we've seen the, the kind of monetary policy go full circle and we've got a return to looser monetary policy. We've seen the central bank cut rates several times this year. Liquidity is back into the system. Growth is picking up again. And the outlook is is very much improving. So I think quite a bit more positive as we look forward into the second half of this year. 

Mike Taggart: When you're talking with companies, is their outlook improved at all, or have you noticed a change from executives you're speaking with?

James Thom:  Very much so. Yeah. And I always think that the banks are the good kind of bellwethers of the economy.

And so I met with one of the leading private sector banks in, in India, who happens to be a holding in, in IFN and, just, 2 or 3 weeks ago. And, you know, they had seen credit growth, loan growth slowed down a bit, in the last few quarters. And, and they were a little bit more conservative. Talking to them now, though, they see the rate cuts come through. They see the liquidity coming back into the system. And they're now talking about that credit growth, be accelerating back to the trend that we've seen in the last several years. Asset quality, to my point around unsecured lending, and sort of soft, but, you know, no, no particular concerns on asset quality either. So, they're saying the setup now for the the second half is considerably better than it was, several months back. 

Mike Taggart: So, James, you're based in Singapore. In the U.S, I think many investors, when thinking of India, they think of, you know, IT services firms, call centers, maybe pharmaceuticals. So things that might be considered exports, right. And so as a result tariffs have been a big concern. But the reality is, is that India is primarily a domestic consumer driven economy. Could you talk about that a little bit, please? 

James Thom: You're absolutely right, Mike. So exports are a relatively small contributor to to GDP, about 30%, and exports specifically to the US, which is obviously where the the kind of real tension is in the current tariff negotiations, contribute just 2% of India's GDP.

And when you kind of unpick that further, the big exports for India, really pharmaceuticals and those have been exempt from tariffs so far. Now that that that could change. But because of the critical healthcare nature of those, pharmaceuticals, they've been exempt and the US is heavily reliant on, on Indian pharmaceuticals and generics. So although at the outset, the US imposed 26% tariffs on India, until they were sort of dropped on that 90 day pause, down to 10%, even at 26%, I suspect we're not going to end up at 26%. The expectation is that won't have a particularly, heavy impact on the economy, because it really is a domestic story - 80% of GDP is driven by domestic consumption, agriculture and things like this. And that's where the India Fund, Inc is positioned around. We've got very little exposure to exports. And we're still seeing very solid, strong structural growth tied to that. The great demographic story that in there is the rising wealth levels, the emerging middle class and so forth. 

Mike Taggart Right. And I think it's really that emerging middle class. Right? I mean, what you have a billion people, and, you know, just getting even, a normal quote unquote, a normal developed country, right, percentage into the middle class. I mean, that's more people than are in the entire United States. 

James Thom: Yeah. I mean, it's actually 1.4 billion. So it's, oh, it's an enormous, population. And it's a very young demographic as well. And, and wealth levels continue to rise. I mean, as you would expect with GDP growing at sort of 6 to 8%. And, and India is at an interesting juncture, I think. So, the GDP per capita today is about 2500 dollars. And when you and I'm not sort of going to say that India's necessarily going to follow China's path because it won't, it's different. But you did see an inflection point when China hit that 2500, 3000 type, dollars per capita GDP. And you've seen it in other developing countries as well, where suddenly the degree that, you know, you just get to that point where you have a little bit of discretionary income, and that really opens up, a huge consumption market for, for these countries. And I think India will be a beneficiary of that, too, in a big way. 

Mike Taggart: Absolutely. And then in mid spring, Pakistan and India seem to be near the brink of war, or so it seems from the US media. Last year, maybe it was, you know, the last couple of years, India had skirmishes with China along their border. Can you discuss some of the risks that investing in India entails.

James Thom: That geopolitics is always going to be a risk factor, for India? You know, in the current point in time, geopolitical tensions around trade and tariffs. And as I've explained, I think India's pretty well positioned certainly relative to China and to other emerging markets. But there are these, tensions on its borders with Pakistan, with China.But from time to time do flare up. And we've seen that most recently with Pakistan unfortunately, on this occasion, as in most occasions in the past, we've seen, you know, that for a relatively short flare up an hour into a ceasefire that seems to be holding, but investors have to be cognizant of that. Having said all of that, you know, I think that's true of much of the world. And we're seeing it certainly today. Right across geographies. And for me as an investor in India, actually, what I think about is, is risk at the company level more than anything, and making sure that we're just investing in really high quality companies with good levels of corporate governance that that you can adjust your capital with and are going to be able to play on that long term structural growth story that that India has in abundance. So, that's where I focus most of my time. 

Mike Taggart: Then finally, I have a two-part question, here to keep things fair and balanced. First, where have you been facing the strongest headwinds in the portfolio? And second, where are you finding the most attractive opportunities? Is there a certain sector, for either one? 

James Thom: Yeah, it's, it's a good question. The in terms of headwinds and where it's been more challenging from a kind of sector standpoint point, the IT services sector, is a large sector to your earlier points around kind of call centers and outsourcing and these sorts of things, you know, these are still in they still have some fantastic companies in this sector. But they have been going through a much slower period of growth. Their core client base is in the US, and in the West more generally, IT spending in the current environment, right, by kind of companies in the West is being slowed down a bit and re prioritized. And so that's weighed on the on the revenue growth of these companies. So that's been a little hard going lately. The other sector that's been pretty subdued is the consumer staples sector in India. So whilst we like it because it is a play on that, you know emerging middle class and premiumisation story, as consumers go from a single one ruby sachet of shampoo to a, you know, a cheaper shampoo to then upgrading to conditioners and so on over time. At the moment we've seen the the rural economy in India, be pretty subdued in terms of spending and growth. And that's been kind of weighing on these companies. I think that's set to change quite soon, but it's been quite a long wait for that to turn around. 

To, to the second part of your question and where the, where the opportunities are and where we're seeing tailwinds. You know, I think we're pretty bullish on the travel and hospitality story in India. So, you know, to take hotels or airlines or any of these things, we're seeing significant spending still happening there. Again, tied to that middle class story. There's a lack of supply, whether it's, you know, premium hotel rooms and so on. So we're seeing room rates increase. And so that's been a really positive story. And, and I think one that will continue, the real estate sector on the residential side has been in 3 or 4 years now of an up cycle. And that is continuing and probably has another three odd years to run, I think. So we're seeing some very strong sales numbers there as well. And with the shift in monetary policy and the cut to rates and an improvement in liquidity that I was talking about earlier, I think the banks and non-bank financial companies are looking much more attractive as well.

Mike Taggart: So things seem hopefully to have gotten back on track in India after slowing down to 6 to 7%, GDP growth, which is still amazing, as you said. Well, thank you, James, for taking the time with us today and for that informative update.

James Thom:  My pleasure. Thank you. There are three convenient ways to learn more about IFN. First you can visit our website Aberdeeninvestments.com. Second, you can email us at Investor Relations@Aberdeenplc.com or give us a call at 1-800-522-5465. I'm Mike Taggart of Aberdeen. Thank you for listening.

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