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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.

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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

Strategy update: Q4 2022

Indian Subcontinent Sustainability strategy update: 1 October - 31 December 2022

Over the course of another turbulent quarter, our focus remained on bottom-up stock picking – we continue to believe that identifying competent stewards who manage growing, resilient franchises, with quality financial profiles, continues to be the best route to delivering sound, absolute returns over the long term.

During the quarter, we initiated a position in Tata Chemicals (India: Materials). Tata Chemicals is one of the world’s leading producers of soda ash. Soda ash is used in a wide variety of end applications, including laundry, glass manufacturing, pharmaceuticals and increasingly the renewables supply chain. Soda ash capacity remains tightly balanced and any spurt in demand should help leading incumbents, such as Tata Chemicals. Tata Chemicals is also investing in increasing its capacity. Over the last decade, the company has slowly evolved into a focused, sustainable chemistry business by diversifying away from fertilisers and salt. The company is also improving the health of its balance sheet under the stewardship of its parent. We believe it is attractively valued given the tailwinds and the improving quality of financials.

We have also added to Aavas Financiers (India: Financials) as valuations have become more reasonable. Aavas is a leading provider of mortgages in rural India with a reputation for a conservative credit culture and affordable rates. It is perhaps the only way to build a resilient lending business long term. Aavas helps improve financial inclusion and the quality of housing infrastructure in rural India, while fostering gender equality through increased participation of women in home ownership. Aavas has been patiently investing in technology and leadership today to be able to grow sustainably for many years to come. We believe Aavas to be one of the best-managed small businesses globally.

We also increased our holdings in Dr. Lal PathLabs (India: Health Care) and Computer Age Management Services (India: Information Technology) as valuations became a bit more reasonable. Dr. Lals is well positioned to continue delivering affordable, quality diagnostic services to a broad section of Indian society. Rising scale ensures they can continue delivering the best quality at an affordable price while maintaining profitability. Computer Age Management Services (CAMS) is a technology provider to the financial services industry. CAMS has built a solid reputation of trust, serving the mutual fund industry through their registrar services. There are similar opportunities emerging within data privacy in financial services and insurance. These are long gestation opportunities best served by companies with long-term horizons and exceptional customer-focused cultures who can patiently build a reputation of trust. Trust is perhaps the best barrier to entry as it takes decades to build yet has to be earned every day. 

We sold the strategy’s holdings in VST Tillers Tractors (India: Industrials). VST is a well-managed farm equipment business with a leading position in tilling equipment. There are long-term headwinds to the use of tilling equipment given their detrimental role in topsoil erosion. Additionally, rising competitive intensity from leaders, such as Mahindra and Kubota, increase risks to VST’s ambitions of growing their tractor franchise. We will continue to observe their evolution as we like the family’s stewardship, steady professionalisation of management and their conservative approach to financials.

We trimmed the portfolio’s holdings in Elgi Equipments (India: Industrials) due to full valuations in the face of rising headwinds, particularly in Europe and the US. Elgi continues to be well positioned to benefit from the industrial cycle in India while slowly expanding its global footprint. They have the necessary ingredients of patience, conservatism and a strong focus on customers to become a world class compressor manufacturer in the coming decades. We believe this journey should be rewarding for shareholders in the long term.

In a scenario of rising geopolitical tensions and macroeconomic uncertainty, we continue to believe that bottom-up analysis, with a focus on fundamental quality and sustainable growth tailwinds, is the best route to tapping into the opportunities and protecting against the risks of investing in the Indian subcontinent.

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.

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Stewart Investors Quarterly Client Update Q4 2022

1 October - 31 December 2022

Investment philosophy

  • We are stewards: Our role is to allocate society’s capital to productive uses, in accordance with our Hippocratic Oath
  • We are long term: Our time horizon is measured in years, not weeks, and we value companies accordingly
  • We invest only in companies contributing to a more sustainable future: We engage constructively as owners to help companies on their sustainability journeys
  • We invest only in high-quality companies: We seek out companies with exceptional cultures, strong franchises and resilient financials
  • We believe capital preservation is important for capital growth: We define risk as the possibility of the permanent loss of client capital

Investment objective

To generate attractive long-term, risk-adjusted returns by investing in the shares of high-quality companies that are particularly well positioned to contribute to, and benefit from sustainable development.

This publication is provided by First Sentier Investors (Australia) IM Ltd (‘FSI AIM’ or ‘Stewart Investors’) in good faith and is designed as a summary to accompany the Product Disclosure Statement for the Stewart Investors Worldwide Leaders Sustainability Fund (‘the Fund’). The Product Disclosure Statement for the Fund is available from FSI, or Implemented Investment Solutions Limited (‘IIS’ or ‘the Issuer’) and on https://disclose-register.companiesoffice.govt.nz/ or https://iisolutions.co.nz/fund-hosting/documents-and-reporting-2/.

FSI AIM forms part of First Sentier Investors, a global asset management business which is ultimately owned by Mitsubishi UFJ Financial Group, Inc (‘MUFG’). Stewart Investors is the name of an investment team forming part of the First Sentier Investors Group.

The information contained in this publication is not an offer of units in the Fund or a proposal or an invitation to make an offer to sell, or a recommendation to subscribe for or purchase any units in the Fund. If you are making an investment directly then you will be required to complete the application form, which can be obtained from IIS.

The information and any opinions in this publication are based on sources that Stewart Investors believes are reliable and accurate. Stewart Investors, its affiliates, directors, officers and employees make no representations or warranties of any kind as to the accuracy or completeness of the information contained in this publication and disclaim liability for any loss, damage, cost or expense that may arise from any reliance on the information or any opinions, conclusions or recommendations contained in it, whether that loss or damage is caused by any fault or negligence on the part of Stewart Investors, or otherwise, except for any statutory liability which cannot be excluded.

All opinions reflect Stewart Investors’ judgment on the date of this publication and are subject to change without notice. This disclaimer extends to IIS, and any entity that may distribute this publication. The information in this publication is not intended to be financial advice for the purposes of the Financial Markets Conduct Act2013 (FMC Act), as amended by the Financial Services Legislation Amendment Act 2019 (FSLAA).

In particular, in preparing this publication, Stewart Investors did not take into account the investment objectives, financial situation and particular needs of any particular person. Professional investment advice from an appropriately qualified adviser should be taken before making any investment.

Past performance is not necessarily indicative of future performance, unit prices may go down as well as up and an investor in the Fund may not recover the full amount the capital that they invest.

No part of this publication may be reproduced without the permission of Stewart Investors or IIS. IIS is the issuer and manager of the Fund. Stewart Investors is the investment manager of the Fund.

This material has been prepared and issued by First Sentier Investors (Australia) IM Ltd (ABN 89 114 194 311, AFSL 289017) (FSI AIM), which forms part of First Sentier Investors, a global asset management business. First Sentier Investors is ultimately owned by Mitsubishi UFJ Financial Group, Inc (MUFG), a global financial group. Stewart Investors is a trading name of FSI AIM.

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. 

Any opinions expressed in this material are the opinions of the individual author at the time of publication only and are subject to change without notice. Such opinions may substantially differ from other individual authors within First Sentier Investors.

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 nor their respective affiliates for any loss or damage as a result of any reliance on this information. This material contains, or is based upon, information that we believe to be accurate and reliable, however neither FSI AIM, MUFG nor their respective affiliates 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 within has been compiled using data from a representative account. This information relates to an existing Stewart Investors strategy and has been provided to illustrate Stewart Investors’ expertise in the strategy. 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. Past performance is not a reliable indicator of future results.

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.

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Strategy update: Q3 2022

Indian Subcontinent Sustainability strategy update: 1 July - 30 September 2022

Over the course of another turbulent quarter, our focus remained on bottom-up stock picking – we continue to believe that identifying competent stewards who manage growing, resilient franchises with defensive financial profiles continues to be the best route to delivering sound absolute returns over the long term.

As a result, we have initiated positions in three new companies in the portfolio. The first addition is Triveni Turbines (India: Industrials) – India’s leading steam turbine maker with an eye on global expansion. Stewarded by the Sawhney family, Triveni has ambitions to build a simple, focused business in turbines that can compete on a global scale. Triveni’s niche of small turbines is an area that requires long-term, trust-based relationships with customisation of end products and a robust aftermarket presence. The results are resilient financials in the form of steady cash generation and a net cash balance sheet.

We also initiated a position in a hospitality business, the leading hotels franchise in India. The company is stewarded by long-term owners, who have spent the recent down cycle in tourism and hospitality making the business leaner and stronger. With the most iconic brand in the country, a franchise that is becoming more asset light through management contracts, and with the potential for a recovery in hospitality and tourism, we believe there is a long runway here for growth in profitability of the core business. 

The third addition to the portfolio is an Indian IT services and embedded software provider focused on the automotive sector. The two co-founders of the company remain in the position of Chair and CEO, and have consistently managed the business for the long term, building strong relationships with key automotive OEMs globally. They have recently taken a decision to shrink the business to a third of its original revenue base – a difficult decision in the short term, but one that ensures a focus on their core competence in auto engineering over the long term. To us, this is a great indicator of stewards who can resist short-term market pressures to build sound, sustainable franchises. The company’s focus is on software and services related to electric vehicles and automated driving systems, benefiting from a long runway for growth in the coming years.

During this quarter, we also exited two positions – Indigo Paints (India: Materials) and Voltas (India: Industrials). While we continue to respect the long-term managers at both companies, we struggled to build conviction in the ability of the franchises to continue to gain in strength in hyper-competitive environments. Both companies were also at full valuations with little margin for error, leading us to sell out of these holdings. 

In a scenario of increasingly greater geopolitical tensions and macroeconomic uncertainty, we continue to believe that bottom-up analysis, a focus on fundamental quality and sustainable growth tailwinds, is the best route to tapping into the opportunities and protecting against the risks of investing in the Indian subcontinent. 

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: 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.

Proxy voting: Q4 2022

Indian Subcontinent Sustainability proxy voting: 1 October - 31 December 2022

Proxy voting by country of origin

Proxy voting by proposal category

During the quarter there were 16 resolutions from 12 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 2022

Indian Subcontinent Sustainability proxy voting: 1 July - 30 September 2022

Proxy voting by country of origin

Proxy voting by proposal category

During the quarter there were 174 resolutions from 25 companies to vote on. On behalf of clients, we voted against one resolution. 

We voted against the election of a director at Dabur as we do not believe they are truly independent. (one resolution)

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: 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.

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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 31 December 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: © 2014–2023 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), or enabling (supported or made possible by products or technologies provided by that company).

Investment terms

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