Home to high-quality companies
We have been excited by the resurgence of good old-fashioned Indian conglomerates.Download PDF version
Exceptional businesses delivering disproportionately better returns
India is home to many high-quality companies. Our past decades of investing in the Indian subcontinent have demonstrated that exceptional businesses managed by competent, conservative stewards deliver disproportionately better returns through cycles. We have been invested in companies like HDFC, India’s leading mortgage financiers, for the past 25 years. HDFC focuses on steady growth of their loan book with a keen eye on risk, making home ownership affordable for millions of Indians. With a team of long-term managers at the helm and benefitting from the structural growth tailwinds of deepening mortgage penetration across the country, HDFC has delivered a compounded return of 18% per annum in USD over this time period1.
Sustainable development in the region
More recently we have been excited by the resurgence of good old-fashioned Indian conglomerates - the Tatas, Murugappas and Mahindras. The Stewart Investors Indian Subcontinent Sustainability Strategy has roughly 40% of its assets invested across many companies stewarded by these groups2. These companies engage in diverse businesses which are well positioned for sustainable development in the region.
We continue to believe that there is no dearth of opportunities in the subcontinent today and remain focused on our strength as patient, active managers.
It is difficult to reconcile with the unceremonious removal of Tata Sons’ previous Chairman, Cyrus Mistry. It is equally difficult to disagree with the choice of his successor – Natarajan Chandrasekharan, the former CEO of Tata Consultancy Services. Over the last six years, Chandrasekharan has been resolute in rekindling a culture of focus, accountability and performance, while holding on to the group’s cherished ethos and long-termism. The group now desires less risky balance sheets while tilting its emphasis back to India after a decade of outward investments. Microsoft, under the leadership of Satya Nadella, is another good example of the potential returns investors can reap when great businesses find quality managers to steer them.
The Murugappa Group felt the overhang of an inter-generational leadership transition within the family. The succession is now firmly in place and the group is becoming bolder in its aspirations, as seen at Tube Investments, headed by Vellayan Subbiah. The company's acquisition of CG Power, a maker of industrial motors, is a clear sign that Tube Investments has set its sights on becoming a leading engineering conglomerate. Recent forays into electric commercial vehicles and tractors is evidence of the evolutionary traits of the group. We believe that the group’s multi-decadal time horizons, competent leadership and conservative approach to financials makes many of their businesses an attractive investment opportunity for the strategy.
The Mahindra Group had two wonderful decades under the stewardship of Anand Mahindra. However, a global expansion in automobiles and some investment choices away from their core strengths set them back recently. Incoming CEO Anish Shah has spent the last six years understanding the group’s history, culture and evolution. He has sought inspiration from how the Mahindras responded to the oil crisis in the 1970s and to the dotcom bubble in the late 1990s. A raging pandemic did not stop the group from admitting to some of their recent strategic mistakes. Much of the repair is completed, paving the way for an exciting decade ahead.
Internal improvements and macro tailwinds; the driver of continued investment returns?
A generational transfer of leadership in each of these groups is setting them up for an exciting future. These institutions have survived and thrived over decades, partly because of their ability to admit to mistakes and correct course when necessary. A rare and exceptional quality. Such a combination of internal improvements and macro tailwinds could be powerful for investment returns.
We continue to believe that there is no dearth of such opportunities in the Indian subcontinent today. We remain focused on our strength as patient, active managers: to identify these high-quality stewards, businesses, and opportunities bottom-up to ensure we can deliver resilient absolute returns for clients over the coming decades.
Stewart Investors’ approach to investing in India
- We are long-term investors.
- We are absolute-return investors. We treat risk as the permanent loss of capital.
- We invest in companies that contribute to, and benefit from, sustainable development.
- We have a proven track record of investing in the Indian subcontinent since 1991.
View our list of investment terms to help you understand the terminology within this document.
Subscribe to our updates
To get regular updates and content from Stewart Investors, please register here.
This material is for general information purposes only. It does not constitute investment or financial advice and does not take into account any specific investment objectives, financial situation or needs. This is not an offer to provide asset management services, is not a recommendation or an offer or solicitation to buy, hold or sell any security or to execute any agreement for portfolio management or investment advisory services and this material has not been prepared in connection with any such offer. Before making any investment decision you should conduct your own due diligence and consider your individual investment needs, objectives and financial situation and read the relevant offering documents for details including the risk factors disclosure. Any person who acts upon, or changes their investment position in reliance on, the information contained in these materials does so entirely at their own risk.
We have taken reasonable care to ensure that this material is accurate, current, and complete and fit for its intended purpose and audience as at the date of publication but the information contained in the material may be subject to change thereafter without notice. No assurance is given or liability accepted regarding the accuracy, validity or completeness of this material.
To the extent this material contains any expression of opinion or forward-looking statements, such opinions and statements are based on assumptions, matters and sources believed to be true and reliable at the time of publication only. This material reflects the views of the individual writers only. Those views may change, may not prove to be valid and may not reflect the views of everyone at First Sentier Investors.
Past performance is not indicative of future performance. All investment involves risks and the value of investments and the income from them may go down as well as up and you may not get back your original investment. Actual outcomes or results may differ materially from those discussed. Readers must not place undue reliance on forward-looking statements as there is no certainty that conditions current at the time of publication will continue.
References to specific securities (if any) are included for the purpose of illustration only and should not be construed as a recommendation to buy or sell the same. Any securities referenced may or may not form part of the holdings of First Sentier Investors' portfolios at a certain point in time, and the holdings may change over time.
References to comparative benchmarks or indices (if any) are for illustrative and comparison purposes only, may not be available for direct investment, are unmanaged, assume reinvestment of income, and have limitations when used for comparison or other purposes because they may have volatility, credit, or other material characteristics (such as number and types of securities) that are different from the funds managed by First Sentier Investors.
Not all First Sentier Investors products are available in all jurisdictions.
This material is neither directed at nor intended to be accessed by persons resident in, or citizens of any country, or types or categories of individual where to allow such access would be unlawful or where it would require any registration, filing, application for any licence or approval or other steps to be taken by First Sentier Investors in order to comply with local laws or regulatory requirements in such country.
This material is intended for ‘professional clients’ (as defined by the UK Financial Conduct Authority, or under MiFID II), ‘wholesale clients’ (as defined under the Corporations Act 2001 (Cth) or Financial Markets Conduct Act 2013 (New Zealand) and ‘professional’ and ‘institutional’ investors as may be defined in the jurisdiction in which the material is received, including Hong Kong, Singapore, Japan and the United States, and should not be relied upon by or be passed to other persons.
The First Sentier Investors funds referenced in these materials are not registered for sale in the United States and this document is not an offer for sale of funds to US persons (as such term is used in Regulation S promulgated under the 1933 Act). Fund-specific information has been provided to illustrate First Sentier Investors’ expertise in the strategy. Differences between fund-specific constraints or fees and those of a similarly managed mandate would affect performance results.
About First Sentier Investors
References to ‘we’, ‘us’ or ‘our’ are references to First Sentier Investors, a global asset management business which is ultimately owned by Mitsubishi UFJ Financial Group, Inc (MUFG). Our investment team operates under the trading name of Stewart Investors which is part of the First Sentier Investors Group.
This material may not be copied or reproduced in whole or in part, and in any form or by any means circulated without the prior written consent of First Sentier Investors.
We communicate and conduct business through different legal entities in different locations. This material is communicated in:
- Australia and New Zealand by First Sentier Investors (Australia) IM Ltd, authorised and regulated in Australia by the Australian Securities and Investments Commission (AFSL 289017; ABN 89 114 194311)
- the European Economic Area by First Sentier Investors (Ireland) Limited, authorised and regulated in Ireland by the Central Bank of Ireland (CBI ref no. C182306; Registered office: 70 Sir John Rogerson’s Quay, Dublin 2, Ireland; Company no. 629188).
- Hong Kong by First Sentier Investors (Hong Kong) Limited and has not been reviewed by the Securities & Futures Commission in Hong Kong. First Sentier Investors and Stewart Investors are business names of First Sentier Investors (Hong Kong) Limited.
- Singapore by First Sentier Investors (Singapore) (Company no. 196900420D) and this advertisement or material has not been reviewed by the Monetary Authority of Singapore. First Sentier Investors (registration number 53236800B) and Stewart Investors (registration number 53310114W) are business divisions of First Sentier Investors (Singapore).
- Japan by First Sentier Investors (Japan) Limited, authorised and regulated by the Financial Service Agency (Director of Kanto Local Finance Bureau (Registered Financial Institutions) No.2611).
- the United Kingdom by First Sentier Investors (UK) Funds Limited, authorised and regulated by the Financial Conduct Authority (FCA ref no. 143359; Registered office: Finsbury Circus House, 15 Finsbury Circus, London EC2M 7EB; Company no. 2294743).
- the United States by First Sentier Investors (US) LLC, authorised and regulated by the Securities Exchange Commission (RIA 801-93167).
- other jurisdictions, where this document may lawfully be issued, by First Sentier Investors International IM Limited, authorised and regulated in the UK by the Financial Conduct Authority (FCA ref no. 122512; Registered office: 23 St. Andrew Square, Edinburgh, EH2 1BB; Company no. SC079063).
To the extent permitted by law, MUFG and its subsidiaries are not liable for any loss or damage as a result of reliance on any statement or information contained in this document. Neither MUFG nor any of its subsidiaries guarantee the performance of any investment products referred to in this document or the repayment of capital. Any investments referred to are not deposits or other liabilities of MUFG or its subsidiaries, and are subject to investment risk, including loss of income and capital invested.
© First Sentier Investors Group