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 Indian Subcontinent Sustainability

Indian Subcontinent Sustainability

Launched in 2006, the strategy invests in companies based in or having significant operations in India, Pakistan, Sri Lanka or Bangladesh.

Launched in 2006, the Stewart Investors Indian Subcontinent Sustainability Strategy is a long-term, equity-only strategy that aims to invest in shares of high-quality companies positioned to contribute to, and benefit from, the sustainable development of the region. Given the size of the economy and the investment universe, the majority of the strategy’s 30-60 investments are in Indian-listed companies.

Strategy highlights: a focus on quality and sustainability

  • Companies must contribute to sustainable development and make a net-positive impact to a more sustainable future. Portfolio Explorer >

  • We invest in high-quality companies with exceptional cultures, strong franchises and resilient financials. How we pick companies >

  • We avoid companies linked to harmful activities and engage and vote for positive change. Our position on harmful products >

  • Our approach is long-term, bottom-up, high conviction and benchmark agnostic

  • We focus on capital preservation as well as capital growth – we define risk as the permanent loss of client capital

Latest insights

Q2 2022

Indian Subcontinent Sustainability strategy update: 1 April - 30 June 2022

Over the course of another turbulent quarter, we continued to focus on our bottom-up stock picking – remaining centered on companies with long-term stewards, resilient franchises, and defensive balance sheets.

We initiated one new position over the last few months, a trusted intermediary between mutual funds and retail investors. This is a business built on trust developed over decades, with high barriers to entry that new competitors have struggled to disrupt. The company is the largest in the industry, benefiting from the financialisation of savings as the middle class continues to grow in India. Watched over by long-term stewards in the form of HDFC who own 15% of the business through various entities, we think the business has the potential to continue evolving into different areas of the ecosystem, aided by a robust balance sheet.

Through this quarter, we also continued adding to our existing holdings that continued to have attractive long-term growth prospects, at very reasonable valuations. HDFC, India’s largest mortgage financier, was one such example. The proposed merger between HDFC and their subsidiary bank remains an exciting point in their journey, which should lower the cost of funds for the historically wholesale-funded mortgage business and enable access to a nation-wide branch network.

To fund some of these transactions, we trimmed positions in companies where increasingly full valuations could impact long-term returns, such as Elgi Equipments (India), the leading compressor manufacturer in the country. While we continue to admire the founder-led culture, ambition, and focus on quality, we remain conscious of the cyclicality of the underlying business.

We remain unable to predict short-term macroeconomic policies or the environments they might produce. In markets such as these, we remain focused on the bottom-up fundamentals of companies – identifying long-term stewards, resilient franchises with sustainable growth tailwinds and healthy financials.

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 the 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.

Strategy update: Q1 2022

Indian Subcontinent Sustainability strategy update: 1 January - 31 March 2022

The strategy's performance during the quarter was disappointing but not surprising. The conflict in Ukraine has added to the inflationary pressures that were building up globally.

As a large importer, India’s currency has faced severe pressure during periods of fast-rising oil prices in the past. History will rhyme but may not repeat. India’s foreign exchange reserves are the healthiest they have ever been, and the current government has demonstrated that it does not intend to subsidise domestic fuel prices. Consequently, we believe the government’s finances and the currency will fare better this time. This shift in approach is important and fundamentally positive long term. It will force productivity improvements and accelerate transition to more environmentally friendly technologies.

Our portfolio companies are mostly consumers of commodities. As category leaders with structural growth opportunities, they are better placed to manage inflationary pressures. However, in the short term, profits may be impacted. Companies may choose to absorb inflation to improve market positioning or might not be able to raise prices straight away due to longer product cycles. Our portfolios will underperform in such markets given limited exposure to commodity businesses and our philosophy of not investing in oil and gas companies. However, such markets provide us fantastic opportunities to buy high-quality businesses at attractive valuations. Many of the transactions conducted during the quarter reflect this.

We have been adding to quality Indian financials such as HDFCKotak Mahindra Bank and Aavas Financiers who are at the cusp of a strong lending cycle. HDFC is trading at its cheapest valuations in the last three decades, as measured by its price to book. We added to Mahindra & Mahindra as valuations continue to ignore the credible turnaround underway at the group. We also added to consumer companies such as MaricoGodrej Consumer Products and Tata Consumer Products. These are some of the highest-quality companies in our universe and the current inflationary environment may provide an opportunity to increase our holdings further in all these businesses.

We sold out of Metropolis Healthcare and added to Dr. Lal PathLabs. Metropolis has delivered attractive returns for our clients. However, we believe Dr. Lal’s is a better quality group and its resolute focus on affordable diagnostics bodes well for the coming decade. We exited Biocon as we felt management has taken significant balance sheet risk to acquire Viatris. We continue to admire their focus on affordable drugs and will continue to monitor their progress in the coming years. We also exited Cyient as we felt the valuations were full for the quality of the franchise.

The prospect of an extended war, and its second-order impacts, drives some caution in deploying rising cash levels. The conflict serves as a useful reminder of the rising geo-political risks globally and the fragile borders India shares with its nuclear-armed neighbours. Meanwhile, India peacefully conducted elections in five states. A strong federal election system remains one of the cornerstones of the democratic process in the country. Such checks and balances are crucial to our ability to allocate capital long term. The long-term opportunity for India remains intact.

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 the 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.

Strategy update: Q4 2021

Indian Subcontinent Sustainability strategy update: 1 October - 31 December 2021

This quarter, we initiated a position in one new company in the Indian Subcontinent Strategy; Tarsons Products.

India has seen a number of private companies choosing to list over the course of the past year. With our bottom-up investment process focused on quality and sustainability, we remain very selective with all of our investments and IPOs in particular. Tarsons is an example of one of the new listings we have chosen to invest. The company continues to be run by the founding Sehgal family, with the third generation now involved in the business. The family has slowly and steadily grown the franchise to become one of the leading labware equipment makers in the country. They have incrementally improved the complexity of their products, and built trust-based relationships with Indian healthcare companies. This is essential in this industry, where establishing a reputation of consistently high-quality products is critical to success. With a strong balance sheet and steady stewards, we believe Tarsons has a runway of growth to continue taking market share from their multinational competitors. 

We also continued adding to HDFC, a mortgage financing provider, and Mahindra & Mahindra, a farm equipment and automobiles company. Both companies have robust long-term stewards, who have seen their respective companies through multiple periods of turmoil, and have opportunities to grow and improve over the coming years. We believe valuations at both companies remain quite reasonable given this combination of quality of stewardship and opportunity, combined with the sustainability tailwinds they will enjoy over the decade ahead.

As we added to these companies, we have trimmed Cyient, an Indian IT services provider. Cyient remains stewarded by a quality family and continues to slowly improve the efficiency and profitability of the franchise. The core franchise however, providing IT services, less robust compared to some of their larger peers. As valuations continued to rise, we believed that we had other opportunities to allocate clients’ capital to, and have trimmed Cyient as a result.

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 the 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.

Strategy update: Q3 2021

Indian Subcontinent Sustainability strategy update: 1 July - 30 September 2021

During the quarter, we sold out of HemasABB 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 IndiaMahindra & MahindraBlue 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 the 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.

Q2 2022

Indian Subcontinent Sustainability proxy voting: 1 April - 30 June 2022

During the quarter, there were 110 resolutions from 20 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. Portfolio data shown is from representative strategy accounts of the strategy shown above. Proxy voting chart numbers may not add to 100 due to rounding. SHP means: Shareholder Proposal.

Proxy voting: Q1 2022

Indian Subcontinent Sustainability proxy voting: 1 January - 31 March 2022

During the quarter there were 15 resolutions from six 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. Portfolio data shown is from representative strategy accounts of the strategy shown above. Proxy voting chart numbers may not add to 100 due to rounding. SHP means: Shareholder Proposal.

Proxy voting: Q4 2021

Indian Subcontinent Sustainability proxy voting: 1 October - 31 December 2021

During the quarter there were 12 resolutions from five 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. Portfolio data shown is from representative strategy accounts of the strategy shown above. Proxy voting chart numbers may not add to 100 due to rounding. SHP means: Shareholder Proposal.

Proxy voting: Q3 2021

Indian Subcontinent Sustainability proxy voting: 1 July - 30 September 2021

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. Portfolio data shown is from representative strategy accounts of the strategy shown above. Proxy voting chart numbers may not add to 100 due to rounding. SHP means: Shareholder Proposal.

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For illustrative purposes only. Reference to the names of example company names mentioned in this communication is merely for explaining the investment strategy and should not be construed as investment advice or investment recommendation of those companies. Companies mentioned herein may or may not form part of the holdings of Stewart Investors. Holdings are subject to change.

Certain statements, estimates, and projections in this document may be forward-looking statements. These forward-looking statements are based upon Stewart Investors’ current assumptions and beliefs, in light of currently available information, but involve known and unknown risks and uncertainties. Actual actions or results may differ materially from those discussed. Readers are cautioned not to place undue reliance on these forward-looking statements. There is no certainty that current conditions will last, and Stewart Investors undertakes no obligation to correct, revise or update information herein, whether as a result of new information, future events or otherwise.

Source: Stewart Investors investment team and company data. Securities mentioned are all holdings which have/have had a portfolio weight over 0.5% from representative Asia Pacific Sustainability Strategy, Asia Pacific & Japan Sustainability Strategy, Asia Pacific Leaders Sustainability Strategy, European Sustainability Strategy, European (ex UK) Sustainability Strategy, Global Emerging Markets Leaders Sustainability Strategy, Global Emerging Markets Sustainability Strategy, Indian Subcontinent Sustainability Strategy, Worldwide Sustainability Strategy and Worldwide Leaders Sustainability Strategy accounts up to 30 June 2022.

The Stewart Investors supports the Sustainable Development Goals (SDGs). The full list of SDGs can be found on the United Nations website.

Source for Climate Solutions and impact figures: © 2014–2022 Project Drawdown (drawdown.org). Source for Human Development Pillars: Stewart Investors investment team.

Source for climate solutions and human development analysis and mapping: Stewart Investors investment team. Contributions are defined by the team as demonstrable contributions to any solution, either direct (directly attributable to products, services or practices provided by that company), enabling (supported or made possible by products or technologies provided by that company) or indirectly (companies that are involved in and around the solution). Indirect contributions are relevant for climate solutions only.

Investment terms

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

Fund data and information

Fund prices and details

Click on the links below to access key facts, literature, performance and portfolio information for the funds and share classes available in this jurisdiction:

Stewart Investors Indian Subcontinent Sustainability Fund

Overview of Stewart Investors Indian Subcontinent Sustainability Fund performance

Fund name Fund type Currency Price Daily change Price date
Stewart Investors Indian Subcontinent Sustainability Class A (Acc) OEIC GBP 847.12 -0.34 30 Sep 2022
Stewart Investors Indian Subcontinent Sustainability Class B (Acc) OEIC GBP 441.78 -0.34 30 Sep 2022
Stewart Investors Indian Subcontinent Sustainability Class A (Acc) OEIC EUR 590.15 1.29 30 Sep 2022
Stewart Investors Indian Subcontinent Sustainability Class B (Acc) OEIC EUR 185.07 1.30 30 Sep 2022
Stewart Investors Indian Subcontinent Sustainability Class B (Acc) OEIC USD 190.51 1.81 30 Sep 2022

Share prices are calculated on a forward pricing basis which means that the price at which you buy or sell will be calculated at the next valuation point after the transaction is placed. Where a fund price is marked XD, this means that the fund is currently Ex-Dividend. Past performance is not necessarily a guide to future performance. The value of shares and income from them may go down as well as up and is not guaranteed. Please note that the yield quoted above is not the historic yield. It is considered that the yield quoted represents the current position of investments, income and expenses in the fund and that this is a more accurate figure. Investors may be subject to tax on their distribution. The yield is not guaranteed or representative of future yields. You should be aware that any currency movements could affect the value of your investment. The Funds within the First Sentier Investors Global Umbrella Fund plc (Irish VCC) are denominated in USD or EUR.

Following the UK departure from the European Union, the First Sentier Investors ICVC, an open ended investment company registered in England and Wales ("OEIC") has ceased to qualify as a UCITS scheme and is instead an Alternative Investment Fund ("AIF") for European Union purposes under the terms of the Alternative Investment Fund Managers Directive (2011/61/EU). Accordingly, no marketing activities relating to the OEIC are being carried out by Stewart Investors in the European Union (or the additional EEA states) and the OEIC is not available for distribution in those jurisdictions. We have made documents available for existing EU investors in the ICVC which can be accessed here