Indian Subcontinent Sustainability


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Strategy overview

The strategy was launched in November 2006 and transitioned to the Sustainable Funds Group in 2008. The strategy invests in companies based in or having significant operations in India, Pakistan, Sri Lanka or Bangladesh and which are positioned to contribute to, and benefit from sustainable development.

 

Strategy update

1 July - 30 September 2021

During the quarter, we sold out of Hemas, ABB India and Tata Chemicals.

These are high-quality companies and ones we would revisit should investment conditions for them become favourable.

The strategy has been invested in Hemas since 2009. Hemas is one of Sri Lanka’s highest quality conglomerates stewarded by the Esufally family. The company continues to be well positioned to grow its consumer and healthcare businesses in Sri Lanka. Our sale was reflective of the weakening fiscal and current account situation in Sri Lanka. Our experience in emerging markets has reminded us that waiting in the queue to get money out of a country is never a healthy sign. ABB India is well positioned to benefit from India’s industrial cycle and the underlying automation tailwinds. But valuations are now very stretched leaving no room for error. Tata Chemicals is looking to evolve into a niche chemicals enterprise through its ventures into nutraceuticals and an electric vehicle battery ecosystem. While we are excited about this journey, valuations are already reflecting much of the optimism. The company’s indebtedness also exposes it to rising interest rate risks. We also sold Square Pharmaceuticals to fund higher conviction ideas.

We added to many of our existing financial services companies as valuations became a little more palatable. We also added to Bosch India, Mahindra & Mahindra, Blue Dart Express and CG Power as they continue to be attractively valued given their potential over the coming decade.

Source for company information: Stewart Investors investment team and company data. This stock information does not constitute any offer or inducement to enter into any investment activity. Portfolio data shown is from representative strategy accounts of each strategy shown above. Named new investments disclosed relate to holdings with a portfolio weight over 1%. It is not a recommendation or solicitation to purchase or invest in any fund. Differences between the representative account-specific constraints, currency or fees and those of a similarly managed fund or mandate would affect results. 

1 April - 30 June 2021

During the course of this quarter, we initiated two new positions in Cholamandalam Financial Holdings and Blue Dart Express in the strategy.

Cholamandalam Financial Holdings owns a 45% stake in Chola Finance, an NBFC (Non-Banking Financial Company) we have previously owned in this strategy, and a 60% stake in Chola MS General Insurance. The business is 49% owned by the Murugappa family, who have a century-long history of conservative growth in India. We have watched the family evolve over the past decades, and built comfort in their stewardship and improving capital allocation. We are encouraged to see the management changes in the insurance business, and a growing focus on underwriting profits. In an insurance market as underpenetrated as India is, a conservative insurer keen to grow profitably with the Murugappa heritage behind them is well set up to continue taking market share.

Our second new position this quarter, Blue Dart Express, is the Indian express logistics subsidiary of the Deutsche Post Group who continue to own 75% of the business. Average tenure of senior managers within the business is 15 years, with the current CEO having been with Blue Dart for over 35 years. These managers have built the leading express franchise within the country, consistently reinvesting behind expanding the reach of their network. In the face of multiple rounds of price-based competition, they have also demonstrated the ability to remain focused on their core strengths of quality and speed, enabling them to retain their strong competitive position. We believe Blue Dart remains well situated to continue benefiting from the tailwinds around improved logistics and connectivity within India.

We also continued to add to businesses like CG Power and Bosch India, that stand to benefit from sustainable tailwinds around industrial growth and improved penetration of electric vehicles. Both businesses are managed by competent stewards, with long runways for structural growth. Bosch, the only listed subsidiary of the international group, is owned ultimately by a foundation which gives them the benefit of a time horizon measured in decades rather than quarters. This has allowed them to make early investments into electrification across automotives. Similarly, CG Power’s electric motors are essential in sustainable infrastructure across the country. Emerging from bankruptcy under its previous owners, the company is now well set up to focus in on profitable growth under their new stewards, Tube Investments, which is also a large holding in the strategy and a Murugappa company.

We decided to exit our position in SKF India, a maker of ball bearings for automotive and industrial end uses, choosing instead to add to what we believe to be higher quality industrials, mentioned above. While SKF India remains a well-managed company, we believe the others have better opportunities for growth in the decade ahead.

Source for company information: Stewart Investors investment team and company data. This stock information does not constitute any offer or inducement to enter into any investment activity. Portfolio data shown is from representative strategy accounts of each strategy shown above. Named new investments disclosed relate to holdings with a portfolio weight over 1%. It is not a recommendation or solicitation to purchase or invest in any fund. Differences between the representative account-specific constraints, currency or fees and those of a similarly managed fund or mandate would affect results. 

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Proxy voting

1 July - 30 September 2021

Indian Subcontinent Sustainability

We voted against the election of two directors at During the quarter there were 237 resolutions from 33 companies to vote on. On behalf of clients, we voted against two resolutions.

We voted against the election of two directors at Dabur as we do not believe they are truly independent. (two resolutions)

Source for company information: Stewart Investors investment team and company data. This stock information does not constitute any offer or inducement to enter into any investment activity. Proxy voting chart numbers may not add to 100 due to rounding. 

1 April - 30 June 2021

Indian Subcontinent Sustainability

During the quarter there were 53 resolutions from nine companies to vote on. On behalf of clients, we did not vote against any resolutions.

Source for company information: Stewart Investors investment team and company data. This stock information does not constitute any offer or inducement to enter into any investment activity. Proxy voting chart numbers may not add to 100 due to rounding. 

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Investment terms 

View our list of investment terms to help you understand the terminology within this document.

Important information

This information has been prepared and issued by First Sentier Investors (Australia) IM Limited (ABN 89 114 194 311 AFSL 289017) (FSI AIM).

Stewart Investors is a trading name of FSI AIM. FSI AIM forms part of First Sentier Investors, which is ultimately owned by Mitsubishi UFJ Financial Group, Inc (MUFG), a global financial group.

It is directed at persons who are professional, sophisticated or wholesale clients and has not been prepared for and is not intended for persons who are retail clients. A copy of the Financial Services Guide for FSI AIM is available from First Sentier Investors on its website. This material contains general information only. It is not intended to provide you with financial product advice and does not take into account your objectives, financial situation or needs. Before making an investment decision, you should consider, with a financial adviser, whether this information is appropriate in light of your investment needs, objectives and financial situation.

MUFG and its subsidiaries do not guarantee the performance of any financial products mentioned or the repayment of capital in relation to any financial products mentioned. Investments in any investment-type financial products mentioned are not deposits or other liabilities of MUFG or its subsidiaries, and investment-type products are subject to investment risk including loss of income and capital invested.

To the extent permitted by law, no liability is accepted by FSI AIM, MUFG or any affiliates thereof for any loss or damage as a result of any reliance on this information. This information is, or is based upon, information that we believe to be accurate and reliable, however neither FSI AIM, MUFG nor any affiliates thereof offer any warranty that it contains no factual errors. No part of this material may be reproduced or transmitted in any form or by any means without the prior written consent of FSI AIM.

Some of the information has been compiled using data from representative accounts. This information relates to existing Stewart Investors strategies and has been provided to illustrate Stewart Investors’ expertise in the strategies. Some of these strategies are not available for distribution in the Adviser market and this material is provided for information purposes only and does not constitute a recommendation, a solicitation, an offer, an advice or an invitation to purchase or sell any fund and should in no case be interpreted as such.

Reference to specific securities (if any) is included for the purpose of illustration only and should not be construed as a recommendation to buy or sell. Reference to the names of any company is merely to explain the investment strategy and should not be construed as investment advice or a recommendation to invest in any of those companies.