Thursday, January 03, 2008

Why Sell The India Fund?

If you needed the money from your investment in The Blackstone Group's India Fund (NYSE:IFN) you might have waited until at least January 2 to sell your shares. In the U.S. this would mean that an employee would not need to pay the capital gains taxes until April, 2009. It would also mean that you are certain to get your $8/share distribution. Some people are savvy when it comes to ex-dividend dates, other investors like to play it safe.
Market Day,  Purulia District 00018

Self-employed people, on the other hand, pay quarterly income taxes. Nevertheless, the sale of any one position in a well-diversified portfolio is unlikely to significantly change an individual's quarterly tax payment. It would be be very unlikely to be the cause of an IRS under-payment penalty. Of course, each individual's investment portfolio and tax situation are different. Ask your accountant or do a rough estimate of your taxes if you are uncertain.

The India Fund has seen a significant drop during late December or early January every year since 2004. There are some people that play certain stocks only at certain times of the year. In the U.S. they incur high capital gains taxes as a result of such a strategy. Smart long investors rarely liquidate profitable positions in less than a year. The tax implications are too significant to ignore.

Therefore, today's (1/3/07) sharp drop in The India Fund could well be related to employees selling the investment in early 2008, to get the money now and avoid paying the taxes for 16 months. Institutions only own 19% of this fund so I do not see them as the cause of today's 4.5% drop.

Shares in The India Fund are currently trading at a significant discount to their Net Asset Value. The latest Weekly Net Asset Value was $64.20/share (See The Blackstone Group web page for more details.). The India Fund is also up 460% over the past 5 years! These two facts alone are likely to steer more investors into this closed end mutual fund over time.

The volume of trading, 920,000 shares, is on the high-side by almost 300k. However that volume may have been warped by investors jumping off the bandwagon. There was little significant news other than oil prices.

Oil prices are a significant factor, despite the optimism expressed by a few. India must import nearly all of it's oil requirements. Energy requirements for India are growing fast. Continued high oil prices will slow growth and increase prices of every product or service sold anywhere in the world. Developing countries are hit particularly hard by rising oil prices.

Oil will be a concern to investors as long as the NyMex ( traders continue to speculate wildly and OPEC nations continue to spend extravagantly. When you see selling against market trends in January, suspect taxes. The 120-point drop in Bombay's Sensitive Index (SENSEX) does not constitute a trend, yet...

For another point of view on the India Fund follow this link

Another recent Emerging Market post.

When little people invest wisely.

DISCLOSURE:The author currently owns shares in The India Fund, Inc. along with other India equities and trades commodities such as oil.

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