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Thursday, August 31, 2006

Analyzing The India Fund (IFN)

By Yaser Anwar, CSC of Equity Investment Ideas

The following are my thoughts on IFN after analyzing: Sentiment, Technicals & Fundamentals:

Fundamentals: India has good long-term prospects. IFN seems to have halved from it's May tops, thus the 6% premium is attractive. The underlying holdings of IFN are well diversified over construction, technology, financials & oils.

Sentiment: The 6% premium can be interpreted as a measure of US retail investor enthusiasm for the Indian market. Based on that I think holding a big chunk of this fund is quite risky. Even if the Indian market continues to perform relatively well, if it just stays more or less stagnant and investor enthusiasm wanes you could possibly see a 10-15% drop that has very little to do with the earnings or performance of the underlying companies in the fund.

Technicals: Based on technical analysis, IFN looks bad. IFN's volume according to the OBV has continuously been dropping, IFN is below its 50 and 200-day MAs. What worries me is the structure of the fund. Since its a closed-end index fund, it has very low trading volume. IFN recently witnessed distribution due to its rights offering, which was oversubscribed (a positive, check image below) IFN needs to cross the 50-day MA on good volume, otherwise this fund could fall lower. I wouldn't be surprised to find it trading sideways for the coming few months.

What i would recommend to you is, if you want to take a position (if you don't already have one) in it now (just incase it resumes its rally) but wait for a pull back. IFN had a double bottom & witnessed support at 37.5, where i would be more willing to add to the current position.

We're entering a historically bad time for the markets. September & October are two of the worst months for the markets, so you might be able to get IFN at a discount later. That being said the 6% premium at the moment is not too bad for a good fund.

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