IFN: Bucking The Bearish India Trend In 2023, Ex-Date This Week

Could India be the new emerging market growth engine?

According to data from the IMF, compiled by Bloomberg and BofA Global Research, India is forecast to overtake China as the world’s biggest country by population later this year. As China’s demographics turn older, resembling the gentrification of Japan over the past few decades, there are more younger people and growing families to help India’s consumer base.

India: Bullish Long-Term Population Trends

In terms of price action, Indian equities have struggled in 2023 despite a global stock market rebound. Notice in the year-to-date heat map below that some of the largest Indian country ETFs are in the red through this past Monday, while the broader emerging market space is higher by more than 6%.

India Red In A Sea of ETF Green This Year

This relative underperformance comes as turmoil unfolds with Adani Group’s sudden fall from grace amid fraud claims with that company and its founder. The Nifty Fifty Index was negative for the year through late January.

Nifty 50 Under Pressure Along with Adani

But let’s home in on one closed-end fund I profiled in 2022. According to the issuer, the India Fund (NYSE:IFN) has an investment objective of creating long-term capital appreciation, which it looks to achieve by investing primarily in the equity securities of Indian companies.

Seeking Alpha notes that IFN was launched and managed by Aberdeen Standard Investments (Asia) Limited, and it invests in small-cap, mid-cap, and large-cap companies using quantitative and fundamental analysis with a bottom-up stock picking and asset allocation approach to creating its portfolio. The stock will trade ex a $0.43 dividend on February 17 with a payout date of March 31.

IFN trades at a modest 0.68% discount to NAV as of February 13 and boasts a high NAV distribution rate of 9.93% as of December 31, 2022. It’s not an exceptionally large CEF with just $477 of net assets, but it is a decent size to have reasonable liquidity for domestic investors (average daily volume is 128,000). It does carry a hefty 1.35% annual expense ratio, however.

Digging into the portfolio, you will find that there are 41 holdings, with a bit more than half in the top 10 – so it is quite concentrated in the managers’ high-conviction names which active investors should like. Turnover is actually not particularly high at 22% and its 29% weight in Financials makes it value-oriented, but Information Technology, Consumer Discretionary, and Communication Services combine for a sizable 29% growth stake. So, it is somewhat balanced between growth and value.

On valuation, Morningstar notes its P/E near 22 with a price-to-book ratio high at 3.5, so that is not super attractive to me compared to emerging market earnings multiples near 13 or 14 right now.

IFN: Top 10 Holdings, Sector Weights

Comparing the performance of some of the major India ETFs to IFN since I last assessed, the India Fund shows very strong relative return figures. IFN is about unchanged on a total return basis while the WisdomTree India Earnings ETF (EPI) is down by nearly 6% and the broader iShares MSCI India ETF (INDA) is off by almost 10% since the start of December last year.

As a technician, I like to see that kind of relative strength. Perhaps that’s driven by growth’s comeback this year, and IFN’s positions in some of those style names benefit from the trend.

India Stocks Shunned. But Not IFN In 2023

The Technical Take

Speaking of technicals, let’s get a refresh on IFN’s chart over the past year. Notice in the graph below that shares dipped below my support price noted in November at $15.50. Indeed, the fund fell another $1 to close out the year, but then stormed back on strong volume in January. Recently, shares have edged higher, but on declining volume. Also, take a look at where shares have met some selling pressure in the last few months – at the falling 200-day moving average.

I would like to see the fund climb above that level to support price action (that would go along with the distribution rate). A rally above the spike high in January and November peaks would support a move toward $18.50 that I outlined previously. Overall, the trend remains lower, but I like the relative strength in IFN, so I am upgrading it to a hold.

IFN: Big Volume Off The Low, Back Above $15.50

The Bottom Line

At the risk of being too short-term oriented, I’m turning neutral on IFN. Its recent relative strength and potential turn in trend could be a bullish sign while its high yield rewards income investors. Still, the lofty valuation is a concern.