Indian Subcontinent All Cap

The second-largest contributor was Kotak Mahindra Bank, which delivered solid underlying performance despite tough operating conditions. Net interest income and pre-provision operating profit grew relatively strongly, credit costs remained stable and return on assets (ROA) improved, while margins remained resilient. Shortly after the quarter-end, head of retail banking Anup Kumar Saha was confirmed as the bank’s new CEO (effective 1 January 2027), ending the uncertainty around the leadership succession. We believe valuations continue to look attractive and have been adding to our stake in the bank. 

The third-largest contributor to performance was Bajaj Auto, which rose after reporting results that came in ahead of expectations. Sales volumes grew strongly across both the two-wheeler and three-wheeler segments, supported by robust export demand. New motorbike launches have been positively received and, together with planned upgrades to existing models, should improve the company’s position in the domestic motorcycle market, where it had been losing share. Bajaj Auto also reported improving profitability in its electric-vehicle (EV) business. 

On the negative side, HDFC Bank was the largest detractor from performance as it continued to face a challenging operating environment. While loan growth improved, margins remained weaker than peers. We have been disappointed with execution at HDFC; consequently, we have been trimming our stake and switching to financials where we have higher conviction, such as Kotak Mahindra Bank. 

Triveni Turbines was the second-largest detractor from performance. After a strong run over the previous quarter, Triveni fell after reporting results that lagged market expectations. While revenue grew, domestic order bookings declined and increased input prices and freight costs weighed on margins. However, the company continued to see strong overseas demand, particularly in its aftermarket business. We have conviction that Triveni’s technology development and focus on high-returning segments will support growth over the longer term. 

Tube Investments was the third-largest detractor. Its latest earnings results were weaker than expected as rising input costs weighed on profitability, although the company is expected to start passing on raw-material cost inflation to customers over the coming months. More positively, Tube is seeing a positive inflection in its EV business, including in e-trucks. 

New purchases over the quarter

We invested in Godrej Industries, an Indian family-owned conglomerate with a history dating back to 1897. Following the 2024 reorganisation of the family shareholding structure, the company has sharpened its strategic focus and invested in growth areas such as Godrej Capital, the group’s unlisted financial services arm. Given that Godrej Industries also has broader interests in property, chemicals and agri-business, and continues to trade at a discount to our assessment of its underlying net asset value, we considered the valuation attractive.

Complete sales over the quarter

We sold Axis Bank, using the re-rating of valuations to raise cash to redeploy into ICICI Bank and Bajaj Finance. We also sold out of small positions in Godrej Consumer Products and CarTrade Tech to raise cash for better opportunities.

Looking forward

Geopolitical and trade-related uncertainties have weighed on the Indian market in the short term. However, metrics such as accelerating credit growth and strong sales of two- and four-wheeler vehicles show that underlying momentum in the economy remains healthy despite the external headwinds. 

In this context, we remain confident about the portfolio’s resilience. The stronger businesses we own have historically been able to pass through inflation and gain share during challenging periods. The recent market weakness has also created attractive opportunities to invest in high-quality businesses at more compelling valuations.

Over the longer term, we see a series of structural trends playing out in India. Rising incomes are driving shifts in consumer spending towards discretionary products and services, while also increasing demand for more sophisticated financial products. At the same time, ongoing investment in energy infrastructure is creating opportunities in areas such as power generation, and a growing number of Indian companies are leveraging their domestic manufacturing capabilities to build globally competitive export businesses. 

With our long-term investment horizon and focus on sustainable earnings growth, we believe the companies we own are well positioned to benefit as India’s economy continues to evolve over the years ahead. 

The second largest contributor was Bosch (India), which announced a 100% acquisition of unlisted Bosch Chassis Systems from the parent group. Bosch Chassis is a tier-one supplier of auto components with a near monopoly (70-80% market share) in safety and braking systems. This is an important segment in India and there are structural tailwinds to its growth – both from a regulatory perspective and from a customer preference point of view, with growing demand for higher safety standards as the market shifts towards premium cars. As these products are powertrain- and vehicle-agnostic, the acquisition should be a significant positive for Bosch’s business, helping to diversify its portfolio and become less dependent on traditional ICE vehicles.

The third largest contributor was KEI Industries, which rose after reporting better-than-expected earnings results, led by margin improvements, as it benefitted from the global movement towards greater electrification as part of the energy transition. While KEI still has a large institutional business, its retail franchise has been growing, which results in more diversified and resilient sources of demand. This has widened KEI’s competitive moat, as it is difficult for new entrants to replicate its vast retail networks. KEI is adding significant capacity to meet demand, which bodes well for future earnings growth.

On the negative side, Tech Mahindra detracted from performance, as concerns about the changing face of technology are leading to headwinds for IT services companies in general. This has led to revenue deflation, which makes it even harder for large companies to adjust. We have sold out of the position as the valuation was not cheap, factoring in these concerns, and the risk/reward did not seem favourable.

Blue Star was the second largest detractor. The company faces multiple headwinds from higher commodity prices, a weaker currency and downbeat consumer sentiment.  Steeper inflation and higher input costs are putting pressure on margins, while attempts to pass through price hikes are likely to hamper sales volumes, especially in the residential air-conditioning segment. We have sold out of the position as the valuation seemed rich, given the headwinds.

New purchases over the quarter

Maruti Suzuki India is a leading manufacturer of passenger vehicles in India. We had owned the shares previously and believe the company to be very high quality – its metrics in terms of returns on capital employed and cash generation are similar to that of a consumer franchise. However, the rapid market shift towards SUVs in recent years, where its share is lower, has had a negative impact on performance. Management recognised this and is making significant changes across the business, which includes new product launches, building out its distribution and service network, and growing its exports. We believe the risk-reward looked favourable as the shares were trading close to trough valuations.

We bought Tata Motors following the de‑merger of its commercial and passenger vehicle businesses, which has allowed the quality of the core commercial vehicle franchise to be better recognised. Tata Motors is the clear market leader in this area, operating in a highly consolidated industry where competitive behaviour has shifted meaningfully from chasing volume to prioritising profitability. This is evident in reduced discounting, improving margins and strong free cash flow generation despite falling volumes. A growing contribution from higher‑margin aftermarket spares, services and fleet‑management offerings has also helped to reduce the company’s cyclicality and support returns on capital. We believe the structural improvement in industry discipline and business quality is not yet fully reflected in market expectations.

Metropolis Healthcare is a leading diagnostics company, with attractive returns on capital employed and strong cash generation. Originally set up as a B2B lab providing specialised tests for other labs, management has been shifting the business towards consumer testing, which has higher margins as patients are willing to pay out-of-pocket to use reputable national chained labs. We believe Metropolis should continue to gain market share from unorganised “mom & pop” players, as patients gravitate to its scale and reputation for quality. It should also benefit from secular industry growth as there is room for per capita spend on diagnostics and average selling prices per test to rise from the current low rates.

Complete sales over the quarter

We sold out of several positions where we had lower conviction, in order to consolidate the portfolio among a smaller number of companies with better long-term prospects. We sold out of the last of our IT services holdings, Tech Mahindra, and divested non-banking finance company Cholamandalam Financial Holdings and online insurance broker PB Fintech (formerly Policy Bazaar).

Looking forward

The US‑Israeli conflict with Iran has heightened geopolitical uncertainty and pushed energy prices higher, weighing on global risk sentiment. As a net energy importer, India is exposed to these pressures. Higher oil prices and a wider current account deficit have added stress to the currency and near‑term inflation, which has fed through to equity markets despite the economy being largely domestically driven.

Encouragingly, prior to the escalation of the Middle East situation, there were early signs of a cyclical improvement in consumer demand in India. While this momentum may soften temporarily, it should resume if conditions stabilise. For now, a weaker currency and higher input costs may weigh on consumption, but we are confident about the portfolio’s resilience, as the stronger businesses we own have historically been able to pass through inflation and gain market share. Recent market weakness has also created compelling valuation opportunities, with several high‑quality companies trading at levels last seen during past crises.

With our long-term time horizon, and our focus on businesses with sustainable earnings growth, we remain excited about the high-quality companies in India. Over the coming years, India’s growth is set to be underpinned by rising levels of urbanisation, favourable demographics, middle-class consumption and a strong digital infrastructure push. We believe the companies we have invested in are at the forefront of this transformation and are well positioned to benefit from these structural tailwinds.

Bajaj Finance, a non-bank financial company (NBFC) and a recent addition to the portfolio, also proved relatively resilient. This reflected the company’s operating strength and balance‑sheet discipline. Its latest results showed strong loan growth across most products and continued expansion of its customer franchise. Asset quality held up well, and investors also took comfort from Bajaj Finance’s diversified lending mix and growing focus on technology and data‑driven underwriting, which should support sustainable growth.

The third largest contributor was Blue Dart Express (no longer owned in the portfolio). The company reported better operational efficiencies and improving utilisation, which offset slower air‑cargo growth. The company has maintained a strong competitive position, supported by an ongoing shift in its business mix towards road‑based express, although margins have been temporarily depressed by recent aircraft additions.

On the negative side, HDFC Bank was the largest detractor from performance. Its improvement in net interest margin has been slower than expected, as it continued to face a challenging operating environment. The resignation of the chairman has also led to concerns. However, we have spoken with the management and joined a call with the new interim chairman Keki Mistry, who we respect. We feel comfortable about the bank’s governance and the quality of its franchise – in particular, its deposit franchise and underwriting culture/capability remain solid and a standout amongst banks. Valuations have declined to levels not seen before, even during the Global Financial Crisis or the Covid-19 pandemic, and we find this to be very attractive, given HDFC’s leading deposit franchise and pristine balance sheet. We believe returns can improve and book value can compound at a mid-teens rate, which is attractive in absolute terms.

CarTrade was the second largest detractor. A leading automotive digital platform that connects buyers, sellers and dealers, the company’s shares fell after a strong run, due in part to likely profit-taking. Fears of potential disruption by “agentic” AI also weighed on sentiment, although the company’s management believes the business will stay resilient, with its access to user data giving it a key advantage in the AI era. We like the company because it remains asset‑light, continues to gain share from weaker competitors, and has substantial long‑term monetisation potential, while generating strong cash flows and expanding margins.

The third largest detractor was Mahindra & Mahindra, the flagship company of the Mahindra group, with interests in auto and farm equipment, financial services, IT services, infrastructure and hospitality. Rising commodity and oil-linked input costs posed a near-term headwind to the company’s margins, although underlying performance has been robust across the auto segments, which account for the bulk of the company’s revenue and profit. Mahindra & Mahindra continues to benefit from market share gains in passenger vehicles and its EV business is also progressing well.

New purchases over the quarter

Bajaj Finance is India’s leading NBFC. Bajaj Finance began with vehicle finance and consumer durable lending and has now expanded into other areas; this presence across different market segments makes it distinctive among India’s NBFCs. The company has a history of showing resilience through crises such as the Covid-19 pandemic. It is currently undergoing changes which we believe should support future growth – such as increased use of AI to improve productivity gains.

Crisil is the country’s largest credit-rating agency (and a subsidiary of S&P Global). The firm’s impressive management has built the business over two decades through astute M&A activity as well as organic expansion into new segments. Crisil should be a long-term beneficiary of India’s deepening capital markets: as more households buy investment products and more companies tap bond-market financing, demand for its ratings, data and research is likely to rise, putting it at the centre of a growth story that has many years to run.

Bharti Airtel is the second largest mobile telecom operator in India after upstart Reliance Jio disrupted the industry with its aggressive market entry in 2017. Bharti survived the fall-out, and even managed to strengthen its market position, profitability and capital discipline. Bharti and Jio now operate in a consolidated industry structure and control the lion’s share of the market. We believe Bharti has a long runway of growth ahead as the smartphone and data revolution has fundamentally reshaped consumer priorities in India. Mobile connectivity has leapfrogged ahead of traditional needs and has become essential not just for communication, but for access to financial services, education, entertainment and government programmes.

Complete sales over the quarter

We sold out of several positions where we had lower conviction, in order to consolidate the portfolio among a smaller number of companies with better long-term prospects. These divestments included two of our least preferred holdings in IT services, Tata Consultancy Services and Infosys, in order to control our exposure to the sector; and Blue Dart Express, to raise cash for more compelling opportunities.

Looking forward

The US‑Israeli conflict with Iran has heightened geopolitical uncertainty and pushed energy prices higher, weighing on global risk sentiment. As a net energy importer, India is exposed to these pressures. Higher oil prices and a wider current account deficit have added stress to the currency and near‑term inflation, which has fed through to equity markets despite the economy being largely domestically driven.

Encouragingly, prior to the escalation of the Middle East situation, there were early signs of a cyclical improvement in consumer demand in India. While this momentum may soften temporarily, it should resume if conditions stabilise. For now, a weaker currency and higher input costs may weigh on consumption, but we are confident about the portfolio’s resilience, as the stronger businesses we own have historically been able to pass through inflation and gain market share. Recent market weakness has also created compelling valuation opportunities, with several high‑quality companies trading at levels last seen during past crises.

With our long-term time horizon, and our focus on businesses with sustainable earnings growth, we remain excited about the high-quality companies in India. Over the coming years, India’s growth is set to be underpinned by rising levels of urbanisation, favourable demographics, middle-class consumption and a strong digital infrastructure push. We believe the companies we have invested in are at the forefront of this transformation and are well positioned to benefit from these structural tailwinds.

Latest insights from the FSSA team

We have written short articles on companies, investment trends and market themes across our various strategies, which are available to read on the FSSA website.

Our latest piece “Against the current” discusses the reasons why high-quality companies are being overlooked amid the artificial intelligence boom and resurgence in cyclical stocks. FOMO is beating fundamentals; but these trends are creating opportunities for quality-focused investors in Asia and emerging markets to accumulate attractive businesses at lower valuations. 

Rizi Mohanty is a Portfolio Manager at FSSA Investment Managers. He joined the team in 2016 and focuses on the Southeast Asian markets as well as Asia ex-Japan equities more broadly. He is the lead manager of the FSSA ASEAN All Cap and FSSA Asian Growth strategies. Rizi has more than 14 years of investment experience and is based in Hong Kong. 

Sree and Rizi are supported by a broader team of investment analysts, with an average of 14 years of investment experience and 8 years tenure with the team. All 15 members of the FSSA investment team are analysts first and foremost, including the portfolio managers, and we spend the majority of our time meeting companies, writing research and seeking quality companies to invest in.

How we invest

FSSA’s investment philosophy, which shares its genesis with SI, has remained broadly unchanged since the First State Stewart team was established in 1988. We focus on identifying quality companies, buying them at a sensible price and holding them for the long term. Most importantly, we invest our clients’ capital as if it were our own. As long-term investors and owners of businesses on behalf of our clients, we look for founders and management teams that act with integrity and risk awareness, and dominant franchises that have the ability to deliver sustainable and predictable returns over the long term.

As a team, we conduct over 1,000 direct company meetings each year across Asia and other emerging markets. The most significant source of investment ideas comes from these company visits and country research trips. We find that our reputation as patient, long-term investors has given us unparalleled access to management, which allows us to gain valuable insights and a thorough understanding of the businesses we want to invest in.

As a result of our long-term time horizon and conservative investment approach, our portfolios – and our performance – can look very different to the index. We shy away from “flavour of the month” themes (such as the current AI-driven boom), and instead look for high-quality companies that can deliver attractive returns for much longer than the market expects – and extend our investment time horizon to capture that advantage. When you own quality businesses, time isn’t a risk – it’s an asset.

Our performance may lag in very buoyant or momentum-driven markets, but we usually compensate very quickly once such bubbles burst. Based on historical data, our long-term track record shows that our portfolios tend to perform better in “normal” markets (-15% to +15% 1-year rolling returns) and bear markets (more than 15% decline), than in steeply rising markets (defined as over 15% 1-year rolling returns).

A smooth transition

Given the significant overlap in SI’s and FSSA’s investment philosophy and portfolios, we know all the holdings well. As part of the transition, we made a few changes to tilt the portfolio towards companies with stronger cash generation, higher returns and better long-term growth prospects.

Below, we highlight a few of the key additions and disposals over the fourth quarter of 2025.

New purchases:

Kotak Mahindra Bank (KMB) is one of India’s leading financial services companies – it has consistently improved the strength of its deposit franchise and maintained better asset quality than peers through the business cycle. While the founder, Uday Kotak, has stepped down from his managing director/CEO role due to the central bank’s limits on leadership terms, he remains closely involved as a board director and should ensure that the bank’s risk awareness and long-term thinking is maintained. Meanwhile, the new CEO (Ashok Vaswani) aspires to grow the business further by focusing on consumer banking and digitisation. We expect to see a growing trend of formalised financial savings, benefiting KMB’s insurance, mutual funds and asset management businesses.

KEI Industries is a leading cables and wires company. The company started as an institutional / tender business, which evolved into a diversified retail franchise. The track record of growth and returns on capital employed has been solid, while customer concentration has reduced and cash conversion has improved. Now, it is focusing on executing the next stage of growth – high-voltage cables and exports. We believe the quality of the business has improved significantly in recent years, and it still has room to grow.

Bosch India is a leading auto-components manufacturer. It was the market leader in fuel injection systems in India, developing new technologies to meet the increasingly stringent Bharat Stage (BS) emission standards in India. This enabled Bosch to maintain its dominant place in the industry (45% - 85% market share across various internal combustion engine (ICE) segments) over several decades. Today, Bosch has evolved to become one of the world’s top EV-component manufacturers. Under the leadership of the new CEO, Bosch is starting to gain market share and improve margins in this space. Bosch globally has invested over €10bn in EV development and maintains significant manufacturing and engineering capacity, including the largest pool of EV engineers in India. We believe it is well positioned for the ongoing EV transition, and it should benefit from rising auto penetration in India – regardless of which auto manufacturer dominates.

Complete sales:

Motilal Oswal Financial Services is a non-bank financial company (NBFC) in India. We sold out of a lower conviction holding to raise cash for better ideas elsewhere.

KPIT Technologies is an Engineering Research & Development company focused on the automotive sector. We sold on account of its expensive valuations and concerns about headwinds for its key customers after a strong period of growth.

CG Power & Industrial makes transformers that are used in power and industrial applications. We believe it is expensively valued for a cyclical business.

Performance and outlook

With our long-term investment time horizon, we tend not to pay much attention to short-term market fluctuations. We invest on at least a three-to-five-year view, though we often hold on to companies for much longer. In an industry rife with short-termism, we believe our long-term approach stands out from the crowd.

What we have seen, over the past few decades, is that average holding periods for stocks have fallen from over eight years in the 1960s to less than six months today.  Yet this shift has come at a cost: it reduces investors’ ability to generate outsized returns that are materially different from the broader market. The reason is simple — as investment horizons shrink, so does the return dispersion between the best- and worst-performing companies. With less time in the market, investors end up tracking the index, not beating it.

Emerging Markets: time horizons matter

MSCI EM Index -dispersion around mean return for top 10% top / bottom stock performers