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Interviewer: Hello and welcome to the latest in our podcast series where we look at how the managers of the Aberdeen Investment Trust range are handling the upheaval in market created by the COVID-19 outbreak. Today we welcome Kristy Fong, Manager of the Aberdeen New India Investment Trust. Kristy, could we start by talking about India’s experience of the virus, how has it impacted the country’s economy?

Kristy Fong: Yeah sure. Today as we stand India is still seeing the number of cases rise so we have yet to see the peak in India, so it’s still looking pretty challenging as it stands. But, if I were to take a step back and look at how the government has managed the virus situation, I would say that they have been quick to address it by announcing social distancing measures, having an early lockdown, and also an extended lockdown. But, unfortunately the reality is it is hard to control in a country like India and so in certain cities there are real stressors with regards to the healthcare system. It has affected the country, particularly the lockdown does come with severe cost. So we have seen demand affected by worries about job security, wages, and this is particularly painful for the informal economy, daily wage earners, on even certain sectors like retail or travel. Then you also have supply disruption, because clearly the lockdown means that the state borders have been closed, so that’s effected movement of goods. And so because of this there has been little choice but for the government to actually start reopening again, even as cases continue to rise.

Interviewer: Okay, and what about fiscal and monetary measures? I mean what support has the government put in place?

Kristy Fong: I must give thumbs up to the central banks. They have done a lot to boost liquidity, to provide relief to the banking sector, to provide support to the low income or even small medium enterprises such as having guaranteed loans for example, as a way to try to encourage more credit flowing to this particular segment. Where it has been underwhelming would be on the fiscal stimulus front, but that's also because the government has a fiscal deficit target to monitor and so hands are tied and there is not a lot that the government can do to stimulate demand the way that one might have seen in other countries.

Interviewer: Okay, I know it's early days, but do you have any sense of whether India will tip into recession, or the quantum of the decline in the Indian economy?

Kristy Fong: Yes, we have people talking about recessionary -- who are talking about recessionary scenarios, decline in growth, negative growth perhaps in the short term, that wouldn’t be surprising. I think what is realistic is that as the economy reopens that is a good start, but it would be difficult or long U-shaped recovery. And depending on how the virus situation goes, if we could track the kind of recovery rate. Yes in the next one year, numbers are not going to look great for India's GDP, but if you look ahead two or three years then I think we are looking at a better economic situation.

Interviewer: Okay and what’s been the impact on stock markets?

Kristy Fong: Well, stock markets like we have seen in global equities, we saw a sharp correction around February followed by a recovery. But if you look at India today, it is still about 16% lower than the start of the year. So it has lacked the recovery that one might have seen in other markets, I think reflecting some of the difficult situation that the country faces today.

Interviewer: And to what extent have you reshaped the portfolio in light of the current crisis, I mean have there been areas where you kind of topped up because valuations have fallen or areas you've backed away from?

Kristy Fong: Yes, well if we look at our portfolio strategy it has not changed, simply because we have always been very bottom-up driven, focusing on quality. And by that I mean buying companies that are strong, that will do better than peers despite of the macro situation. So because of that we haven't had a need to really restructure the portfolio because our companies we believe are the ones that will come out of this a lot stronger than others. What we have done was also to actually have a solvency check across the balance sheets of our holdings, and they are all looking healthy as we would expect. We have just exited one name that was more highly geared, had high operating leverage and exposed to the tourism sector. Overall, structurally our portfolio remains the same. We have been opportunistic in buying on dips - some of the banks for example that we've had we’ve topped up on weakness and we continue to back the high quality names that have been defensive such as consumer staples and IT services.

Interviewer: Okay, I mean do you think the COVID-19 outbreak could change the longer-term prospects for India? I mean, could Indian companies benefit from some of the manufacturing moved away from China for example, and is that reflected in the portfolio?

Kristy Fong: Yes, so I have spoken about the near-term and medium-term challenges, but obviously with any crisis there should be opportunities and we see this as an opportunity for India as the world thinks seriously about diversifying away from China for example. So while we have been underwhelmed with the fiscal stimulus initiated, we were encouraged that the Modi government has not forgotten their reform agenda. He's done difficult measures such as he's recently spoken about addressing the land and labour reform, and all these would really help to attract more foreign direct investment. Of course, at the same time he's spoken about increasing resilience, Made in India campaign. So there is an opportunity for India to really use this COVID situation as a chance to restructure.

Interviewer: Right and there's no danger that Modi’s reform program might be derailed by the COVID crisis, do you think he can still push ahead with that?

Kristy Fong: Well, where there could be constraints would be on funding, financing it, which is again why it is India's chance to really show the world that they can be a reliable place to invest in, draw long term sticky foreign direct investment flow. I guess, we also hope to see more focus on addressing the weak economy. Right now at this moment, we are hearing a lot about the border tensions with China, we hope that's not going to be a distraction away from what the government should be focusing on and that’s really fixing the economy.

Interviewer: Okay, and I wonder if you could just go back to the portfolio quickly and just talk a little bit about whether there are any key themes that are running through the portfolio and possibly anything you’re looking for in the companies that you're selecting?

Kristy Fong: Yes, okay so when we look at India what we find attractive is the huge market opportunity, the growing demographics, middle class growth, so if you look at our portfolio it's very domestic oriented. We like companies that do well selling to the consumer, the aspirational Indian consumer, so consumer staples is an area that we favour. We also recognise the strength of Indian talent and being able to outsource that talent and whether that is through IT services or even healthcare. Those are the themes that we find attractive in India. More than that I think what's really interesting about India is that one hears a lot about the macro challenges, but actually what is very interesting to us is the strength of the underlying companies. So within even difficult sectors for example, in banks, we are able to find world class operators that will benefit from consolidation as the challenges in the economy and the second step, there will be market shaping for the best in class operators. That is theme that we find not just within the private sector banks but also in real estate. I guess to sum it up as well, what India lacks is infrastructure, again a difficult sector, but we have identified cement, paint as a proxy to that infrastructure demand potential. So this is how our portfolio looks really being more biased towards domestic oriented companies and consumer staples, services in IT, IT services and healthcare, we find attractive as well, a consolidation phase within banks and real estate as well as cement as an infrastructure proxy.

Interviewer: Okay, and how do valuations look relative to their history?

Kristy Fong: Well, with the market 16% lower, then it is cheaper than before, but obviously one has to remember that earnings would also be weaker and we are probably going through a cycle of earnings downgrades as well. So this is how it looks for the near term where valuations may not be as cheap as it's been because of the earnings pressure, but again looking out two/three years ahead then this is actually an interesting time to be picking up stocks that have been beaten up. If you are to look at a more stable measure as in price-to-book then we are at two standard deviations lower than its 10-year historical average. So if one was to be longer term and patient enough for this recovery then India does look interesting at current prices.

Interviewer: Okay, and do you have any kind of final messages for investors who are holding their nerve in this tough environment?

Kristy Fong: Yes, I mean investing is a long-term game and one has to be patient because there really would be interesting opportunities at this point to be investing in good quality companies and that's who we are. India can be a difficult market, obviously we are looking at a challenging growth outlook at the moment, but being stock pickers we see this as an opportunity to be invested and backing the best in class operators within each sector.

Interviewer: Okay, great, thank you Kristy, for those insights today and thank you also to our listeners. You can find out more about the Trust at www.aberdeen-newindia.co.uk and please do look out for future updates.

This podcast is provided for general information only and assumes a certain level of knowledge of financial markets. It is provided for information purposes only and should not be considered as an offer, investment recommendation, or solicitation to deal in any of the investments of products mentioned herein and does not constitute investment research. The views in this podcast are those of the contributors at the time of publication and do not necessarily reflect those of Aberdeen Standard Investments. The value of investments and the income from them can go down as well as up and investors may get back less than the amount invested. Past performance is not a guide to future returns. Return projections are estimates and provide no guarantee of future results.