Why India: <br />
Investing in the Indian subcontinent

Why India:
Investing in the Indian subcontinent

The Indian subcontinent has been a fantastic investment destination over the last few decades....

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  • The Fund invests primarily in a diversified portfolio of equity securities or equity-related securities of companies whose activities predominantly take place in the Indian subcontinent and are listed, traded or dealt in on regulated markets worldwide
  • Investing with the sustainability investment strategy in the Fund is subject to the associated risks such as subjective judgement in investment section, reliance on third party sources, lack of global standardization regarding which activities qualify as sustainable and concentration in investments with sustainability focus
  • The Fund invests in emerging markets which may have increased risks than developed markets including liquidity risk, currency risk/control, political and economic uncertainties, high degree of volatility, settlement risk and custody risk
  • The Fund invests in shares in India and the other countries in the Indian Subcontinent which may have greater risk than developed markets including potential changes in tax law and practices and the political, social and economic environment
  • Investing in small/mid-capitalisation companies securities may have lower liquidity and their prices are more volatile to adverse economic developments
  • The Fund’s investments may be concentrated in a single sector or single country/specific region which may have higher volatility or greater loss of capital than more diversified portfolios
  • The Fund may use FDIs for hedging and efficient portfolio management purposes, which may subject the Fund to additional liquidity, valuation, counterparty and over the counter transaction risks
  • It is possible that a part or entire value of your investment could be lost. You should not base your investment decision solely on this document. Please read the offering document including risk factors for details

Investment returns in the subcontinent have been primarily driven by India since she liberalised her economy in 1991. Investment into one of the earlier Indian indices would have yielded compounded returns of approximately 9% in USD from December 1992 to date. This compares very favourably with other global and emerging market indices over the same period.

Liberalisation and reform fires growth

1991 was an important year for India as the balance of payments crisis led to the liberalisation of the economy, setting her on an irreversible developmental path. Economic growth averaged roughly 4% in the three decades prior to 1991, and approximately 6% in the three decades following1. There is consensus cutting across political lines on the benefits of the 1991 liberalisation and the reforms adopted since. There is also broad agreement on the sustainable development challenges that need to be addressed for the next generation. Successive governments might differ slightly on how they approach these challenges but the direction of travel remains the same. Such continuity makes the region quite predictable.

Index returns since 31 December 1992

Source: Stewart Investors and FactSet as at 31 December 2022.

The region is home to roughly 20-25% of the world’s population1. India currently ranks 132 in the Human Development Index (HDI)2, while its neighbours aren’t doing much better. Many human development issues such as access to affordable finance, quality healthcare and education, and infrastructure are yet to be solved. An impending climate crisis means the subcontinent has to leapfrog many phases of evolution that the West or even China have endured. Evolution of mobile telephony, digital payments and e-commerce is evidence that such leapfrogging is both possible and desirable. India’s GDP per capita is USD 2,257 as per the World Bank estimates1. If the Indian economy grows at 6% per annum, we believe it will take India roughly 30 years to reach the standards of living we see in China today, as per our estimates. This is an attractive long-term opportunity for investors. However, a stable socio-political regime with sufficient checks and balances is necessary to stay on this development path.

The unsung heroes of long-term capital allocation

We believe it will take India roughly 30 years to reach the standards of living we see in China today as per our estimates. This is an attractive long-term opportunity for investors.

It is rare to see tens of thousands of people protest peacefully outside a nation’s capital for months. It is more rare in the polarised times we live in. The Indian farmer protests in 2020 were a sign that society can challenge the prevailing government of the day. It is not the first time. Back in 2012, there were peaceful anti-corruption protests across the nation, which eventually led to the fall of the previous government.

The ability of companies and society to engage with governments and hold them accountable where necessary is key for the sustainable development of economies. Institutions - such as the judiciary, state governments, media, the not for profit sector, an independent central bank - and the many rights for citizens enshrined in the Indian constitution provide a solid foundation upon which the economy is being built. These are the unsung heroes of long-term capital allocation.

A steady current of reforms beneath a vibrant (and noisy) democracy

India’s vibrant and often loud democracy is misunderstood as chaotic and risky. We believe the opposite is true. Underneath the surface is a steady current of reforms and progress. India’s diversity and the need to pursue a different development path to the West requires a more patient investment approach. We struggle far more with the opacity and the binary risks that come alongside investing in high-growth, authoritarian regimes. However, investing in the subcontinent is not without risks and potential market volatility. Fragile borders, water shortages, rising social divisions, inequality and climate change are key challenges. Yet the biggest challenge is to improve the standards of living of more than a billion people living in the subcontinent. 

A reward for patient investors?

Consensus on economic reform across political lines, a democratic system with checks and balances, a long runway for growth, and a rich universe of high-quality companies makes India an attractive destination for long-term investors. We are optimistic that the Indian subcontinent should continue to reward patient investors with sound absolute returns in 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.

 

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 the same. All securities mentioned herein may or may not form part of the holdings of Stewart Investors’ portfolios at a certain point in time, and the holdings may change over time.

Why India: Home to high-quality companies

India is home to many high-quality companies. Our past decades of investing in the Indian subcontinent has demonstrated that exceptional businesses managed by competent, conservative stewards deliver disproportionately better returns through cycles.

Investment terms

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

 

Important Information

Investment involves risks, past performance is not a guide to future performance. Refer to the offering documents of the respective funds for details, including risk factors. The information contained within this material has been obtained from sources that First Sentier Investors (“FSI”) believes to be reliable and accurate at the time of issue but no representation or warranty, expressed or implied, is made as to the fairness, accuracy or completeness of the information. To the extent permitted by law, neither FSI, nor any of its associates, nor any director, officer or employee accepts any liability whatsoever for any loss arising directly or indirectly from any use of this. It does not constitute investment advice and should not be used as the basis of any investment decision, nor should it be treated as a recommendation for any investment. The information in this material may not be edited and/or reproduced in whole or in part without the prior consent of FSI.

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First Sentier Investors (Hong Kong) Limited is part of the investment management business of First Sentier Investors, which is ultimately owned by Mitsubishi UFJ Financial Group, Inc. (“MUFG”), a global financial group. First Sentier Investors includes a number of entities in different jurisdictions.

To the extent permitted by law, MUFG and its subsidiaries are not responsible for any statement or information contained in this material. Neither MUFG nor any of its subsidiaries guarantee the performance of any investment or entity referred to in this material 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.