The India Fund, Inc. (IFN), featuring Portfolio Manager James Thom

Join Mike Taggart, Head of Closed-End Fund Investor Relations, and James Thom, Portfolio Manager for The India Fund, Inc (IFN) to learn more about India’s long-term growth story and current short-term challenges. 

Transcript

The India Fund, Inc

Podcast Transcript

December 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 discuss the fund.

James Thom: Thanks, Mike. Great to be with you as always.

Mike Taggart: So James, right now IFN's trading market seems to be buffeted with tariffs, tariffs, tariffs, and H-1B visa news here in the States. Often with closed-end funds, a little information can go a long way because these are funds that trade in an inefficient market. Would you please shed some light on the situation with tariffs and the H-1B visa topic, please?

James Thom: Yeah, happy to. And I appreciate it has caused some concern in the market and for investors that are maybe a little bit further away from India. And certainly that headline, 50% tariff that India is now battling under, does kind of does look pretty, pretty bad.

And, but the reality, I think, is that in terms of actual fundamental impact on India, it's not nearly as troubling and as concerning as that headline figure might suggest. And why is that? Well, partly because India is very much a domestic consumption story. Exports is a very small component of kind of GDP growth and economic activity for India. It's very different to China, for example, in that respect, and indeed, large parts of the rest of Asia. So to give you an idea, exports from India to the US make up about 2% of India's GDP.

Secondly, there are some very important exemptions under this current tariff regime. In particular, India is a big exporter of pharmaceuticals to the US and those have been exempt for sort of health care and medical reasons. And that's a big chunk of the export bill that's not captured under tariffs.

IT services is another huge success story for India and Indian companies doing a lot of work in the US. That's a service, so has been exempt from the tariff regime. Yes, you're right to highlight the H-1B visa issue. And that is a step back.

They've now got to pay, I think it's something like 100,000 bucks for a visa. So that's pretty, pretty, pretty high. But this isn't the first time these Indian IT services companies have had to deal with this issue.

They had to deal with it back in 2016 under, you know, when Trump in Trump's first President Trump's first administration, and they learned their lesson from that. And they have now insulated their businesses significantly. They hire have hired a lot more people on the ground in the US. So there will be an impact to the bottom line earnings, but it's not nearly as material as it again, as the headlines might suggest. So I guess overall, the headlines look pretty bad, and I understand why that's caused concern. But the sort of economic reality of it is very different. And you've got to remember that the negotiations are ongoing. It has been quite protracted. We don't know when it's going to end, but a deal will be reached. And as we've seen in most other markets, I don't think this 50% is going to be the end game. We're all hoping it'll be and expecting it will be a lower tariff in the end.

Mike Taggart: Okay, great. So that in a nutshell is the news. And like you said, 2% of Indian GDP is with the US exports. So, you're in Singapore, you're in the region, the investment team is there as well, in constant contact with the companies you're invested in. You and the team travel to India regularly. IFN investors are primarily here in the US. The share price is reflecting concerns of those investors here in the US, but certainly the NAV has been trending down lately. It's a bit disconcerting for a fund that has performed so well over the past few years. You know, what's going on?

James Thom: Yes, that's right. So IFN and the India market had a great run for two, three years with some stellar performance and returns. And this year it's been on the back burner. You know, I don't obviously what we just talked about there with the tariffs and so on is a factor. But as I've explained, I don't think it's the factor. I don't think the reality of that in economic terms is that material. So there are other things going on.

One is simply that India is not being considered an AI play. This year, the world over, the markets have been driven by AI, right? US in particular. But in Asia, it's been the North Asian markets. It's been China with all of their own large language model development, the deep sea excitement, et cetera. And then also Taiwan, Korea that are playing in that kind of AI supply chain, providing semiconductor chips and components equipment and so on.

India, they're starting to do things in AI and large language models, but way behind. So it's seen as the sort of anti-AI trade. And so foreign flows have been effectively absent from India and money's been taken out to go into these more exciting kind of stories elsewhere. So that's definitely a factor. And we shouldn't gloss over the fact that after, why did India's market do so well in the last two, three years?

It's because growth had been really robust. GDP was clocking sort of 8, 9% growth. Earnings growth was compounding at a sort of 20% tight CAGR. That has slowed down this year.

There has been a slowdown. We've seen GDP growth go from 8, 9% to sort of 6.5, 7%. That's still the envy of the world, but in Indian terms, that's a poor year. And that's filtered through to earnings growth. We've seen a series of sort of downgrade cycles come through on each reporting season with companies reporting their results. And that has been weighing on the market performance.

Why am I not concerned about that?

Mainly because I see it as largely cyclical and largely of India's own making. So it's not really the tariff issue that's been driving that. It's the fact that policy...domestic policy has been too tight. You've had tight monetary policy and you've had kind of a government pursuing fiscal discipline and sticking to a target fiscal deficit. And that's just caused a bit of a liquidity crunch, put the brakes on growth, and this is what the result. But that's pretty easily fixed, right?

And we've seen over the course of this year, policymakers have recognized that. We've seen interest rates get cut. Obviously, following what the Fed's done to some extent, that's created the headroom to do that. But inflation's super low. The government has come through with various reforms on the tax front. So most recently, just reformed the goods and services tax by simplifying and lowering that rate. They made changes to income tax as well, all of which, I believe, is going to help support growth as we look into next year and we will see this slowdown prove to be temporary and cyclical in nature.

Mike Taggart: Okay, well, you're starting to touch on my next question. And kind of given everything that you've said about what's going on here and kind of the setup with taxes being, you know, tax rates being reduced, interest rates being cut, what is your outlook for the Indian economy, the market and IFN, kind of as we head into 2026 and early part of 2026?

James Thom: Yeah, look, so I can't...

Mike Taggart: Yeah, you don't have a crystal ball, I know. No crystal ball.

James Thom: And I'm, you know, you can't time markets, right? And we don't time markets. What we do is look at the fundamentals and we look at the sort of structural setup. And, as I've explained, I think this is a largely self-made, cyclical, temporary slowdown that we've seen that will at some point self-correct.

And I expect that at some point will be through the course of next year, 2026. What I can say with a fair degree of confidence is that India to me stands out as the best long-term structural growth story in Asia still, and possibly the world. I mean, it's just, and that hasn't changed, right? And we go and we've seen these cyclical slowdowns every several years. This one's no different, but it mean reverts and you get to this long-term trend. And what's underpinning that?

Well, I mean, back to the basics, right? It's the demographics. India is close to 1.5 billion people now. That's kind of 18% of all humanity. Let's not forget that. It's also an exceedingly young population, right? Median age of 28. I think there's something like 440 million people. So that's more than the population of the US under the age of 18.

They're going to be the youngest population for the next 45 years are going to be the talent capital of the world. They produce one and a half million engineers a year. And that's great for a world that's moving more and more to technology and AI.

So whilst they're not the AI trade today, there's a very high probability that many, many Indian engineers are going to be involved in that story over the years to come. And we're still at a GDP per capita of less than 3000 bucks which, history tells us and case studies across the world tell us that that's often an inflection point where disposable incomes start to pick up and you see that kind of rise in spending.

So I think, you know, that kind of that demographics, that emerging middle class, that rising wealth level, and the fact that it's a stable democracy, you don't have that stroke of the pen risk that you have in many other kind of emerging markets. It's much more predictable, much more sort of easy to sort of understand. And as an investors, that gives us confidence.

And then, the final point that I think is, again, sort of overlooked to some extent is that, yes, India is not the AI story yet or today and may never rival the US and China in terms of AI capabilities, but they're doing some fabulous things on the digital front.

The sort of public digital infrastructure that they've put in place is unique at this scale.

And it's turned, India's got 900 million people online now. They're generating the most data in the world.

Mike Taggart: 900,000, 900 million.

James Thom: Sorry, I meant 900 million. Yeah, good clarification. But generating more data than any other place in the world. And you know, we, and that's the sort of basis then for the analytics and the cloud and the building all of these AI applications off the back of that. So I'm still very positive on the long-term story through India.

Mike Taggart: Yeah, there's a lot of positive tailwinds and just kind of the big picture, right? And to your point, like this, you know, you believe this is a cyclical slowdown, but don't lose track of the fact that there are these great tailwinds that are propelling India forward.

So, well, thank you, James, for keeping our investors well informed. Really appreciate you taking the time.

James Thom: No, a pleasure. Thank you for having me on.

Mike Taggart: There are three convenient ways to learn more about IFN. Visit our website, ABRDNIFN.com. Second, you can e-mail 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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