Global Emerging Markets Leaders

The long-term outlook for Indian companies remains bright

The quarter saw a continuation of an unhelpful dynamic: the significant outperformance of the Chinese market relative to India, to which this strategy has a significantly higher level of exposure. Despite this, we remain enthusiastic investors in high-quality companies aligned with India’s economic development. So far, this year has seen a reduction in income taxes and a simplification of the Goods and Service Tax (‘GST’) system. The Reserve Bank of India, meanwhile, has been cutting interest rates. So demand is now being supported by both fiscal and monetary loosening. 

There is, of course, more to emerging markets than China and India. Recent trip reports from Indonesia, India and the Philippines are available on our Insights page. Having visited South Korea in September, we are increasingly confident in the changes to corporate governance standards that are unfolding in that country. These echo similar reforms seen in Japan and should have positive effects on shareholder returns in Korea and perhaps across the region more widely – a similar mood of reform now seems to be infecting other countries across Asia. 

Continuity and change

It would be remiss not to mention the changes that have taken place at Stewart Investors   over the last quarter. After acting as careful stewards of our clients’ capital over many years, three of our colleagues stepped back from their portfolio-management responsibilities in August and left the business. While the list of portfolio-management responsibilities within our team looks different now than it did when the quarter began, on a deeper level, nothing has changed: the philosophy and approach that has defined Stewart Investors since 1988 is deeply engrained and continues to define what we do. Our structure is flat. Every member of the investment team is first and foremost an analyst and our collective focus is on identifying high-quality companies, with resilient financials, guided by ambitious stewards. 

Jack Nelson remains this strategy’s lead manager. He continues to apply the same principles to managing it that have guided it since its launch, working as part of the same tight-knit group of investment analysts and drawing on a common pool of investment ideas.

Activity

We added three new holdings to the portfolio over the quarter. There were no complete sales.

In addition to Shopee, the dominant e-commerce platform in Southeast Asia, Sea (Singapore: Consumer Discretionary) owns digital entertainment brand Garena and provides digital financial services through SeaMoney. Shopee is increasingly well established around the world, employing 45,000 ‘partner-drivers’ in Brazil.¹ We believe Sea now has an opportunity to expand into new markets as well as increasing the penetration of Shopee and SeaMoney. The company’s founder, Forrest Li, remains closely involved in the business but is now supported by a professional management team. He has built a great franchise backed by solid financials (the company has net cash on its balance sheet) that empowers millions of small businesses to grow and create jobs by giving them direct access to their customers.

We also added a new holding in Motilal Oswal Financial Services (India: Financials), a brokerage and wealth management business that is poised to benefit from the desire of India’s increasingly wealthy middle class to have greater access to capital markets. It is still managed by its founders, including the eponymous Motilal Oswal and we can see a steady growth path ahead for the coming decades. 

The final new position is MakeMyTrip (India: Consumer Discretionary), a leading online travel website. It should benefit from a continuing shift in India towards booking travel online. Meanwhile, as the disposable incomes of Indian consumers grow, they will increasingly want to travel overseas as well as domestically. While it is 49% owned by Trip.com, the Chinese online travel business, the company’s founders remain involved in the business’s day-to-day activities, supported by a professional management team. It is already a leader in the online travel space in India but the real growth opportunity lies in the offline segment, specifically in bus and hotel bookings, many of which continue to be made in bricks-and-mortar travel agencies. 

[1] Source: Sea Shopee Celebrates 5 Years in Brazil, Strengthening Income Generation and Entrepreneurial Growth.

We sold the holding in Jerónimo Martins, the Portuguese-listed owner of Poland’s Biedronka supermarket chain and of Ara in Colombia (around 80% of the group’s revenues are generated in Poland and Colombia)³. We like the company’s management and the outlook for the business, but the stock has performed well and we struggle to see enough growth coming through to warrant the shares’ current valuation.

Elsewhere, we have become increasingly concerned about the outlook for IT services businesses, particularly those with a significant level of exposure to the US. We see a risk that its clients postpone or cancel investments in their IT systems due to the uncertainties currently facing the US economy. As part of our ongoing review of this sector, we also trimmed the holding in Globant (Argentina: Information Technology). We understand the argument that some companies will need IT services businesses to help them to adopt and integrate artificial intelligence (AI) tools. Equally, it may be that its clients actually use AI to replace their existing IT services.

Looking ahead, renewed weakness in the dollar could be the trigger for capital currently domiciled in the US to begin to flow into emerging markets. We remain particularly positive on the prospects for high-quality companies in India. The central bank recently started cutting interest rates, which is a clear positive for demand in rural India. Towards the end of the quarter, we attended a conference of Indian companies and were struck by how positive all of them were about the growth opportunities before them over the next 10 years. In our view, this potential growth – and the size of the Indian market – continues to offer powerful support to valuations.

[1] Source: Financial Times, 30 June 2025 ‘US dollar suffers worst start to year since 1973’.

[2] Source: Straits Times, 21 December 2023 ‘China is world’s second-largest economy but its passport is ranked 63rd. Are things looking up?’.

[3] Source: Jeronimo Martins Operational and Financial Indicators q1 2025.

Elsewhere, we added a handful of new names and trimmed some existing positions. We took some profits in Marico (India: Consumer Staples) and reallocated the capital to Info Edge (India: Communications), Tube Investments (India: Consumer Discretionary), Bajaj Auto (India: Consumer Discretionary) and Bajaj Holdings & Investment (India: Financials). These companies had been on our focus list for a while but their valuations had dissuaded us from establishing positions. InfoEdge is a technology company whose online jobs portal caters to 132,000 corporate customers and hosts around 100 million CVs². It also has property, matchmaking and educational portals. Tube Investments is an industrial conglomerate whose share price had fallen sharply, providing us with what we believe is an excellent entry point. Bajaj Auto had also sold off allowing us to add this leading manufacturer of motorcycles, scooters and auto rickshaws, which is backed by a high-quality steward. Bajaj Holdings & Investment is the holding company of siblings Rajiv and Sanjiv Bajaj. They have demonstrated an exemplary track record of delivering returns for shareholders in autos and financial services.

Elsewhere, we sold convenience store business Dino Polska (Poland: Consumer Staples), which had performed well but which had become too expensive for its long-term growth expectations. We also sold Unicharm (Japan: Consumer Staples). While it has pivoted to adult diapers in response to demographic change, it has found this shift harder than it had originally envisaged.

We built positions in Samsung Biologics (South Korea: Health Care), Alfamart (Indonesia: Consumer Staples), Voltronic Power (Taiwan: Industrials) and BDO Unibank (Philippines: Financials). We believe Samsung Biologics can use the strength of its parent company’s balance sheet to add capacity more quickly than its competitors and win market share. Alfamart is the second biggest player in Indonesia’s convenience-store sector³. It plans to roll out new stores across the country over the next decade. Its shares sold off as the market took fright at Indonesia’s new government but we can see a clear and dependable growth path before it. Voltronic Power makes uninterruptible power supply units (PSUs). We expect demand for these to increase steadily as a new generation of data centres is built worldwide. Finally, BDO Unibank is the Philippines’ largest lender⁴. It is backed the Sy family, who we believe are great long- term stewards.

While we are broadly positive on the outlook for emerging markets, we recognise that there is likely to be ongoing volatility for as long as ‘top-down’ uncertainty – inspired by trade tariffs and geopolitical flux – remains at elevated levels. Valuations are certainly attractive and there remains plenty of domestically driven growth in the markets we favour. Our task is to block out the short-term noise to focus on the underlying quality, growth and stewardship of the companies we invest in.

[1] Source: FactSet as of 31 March 2025.

[2] Source: InfoEdge: Annual Report 2023-24.

[3] Source: Fitch Ratings Fitch Revises Alfamart's Outlook to Positive; Affirms at 'AA(idn)'.

[4] Source : BDO Unibank – Company Profile (as of 31 December 2024).

We continue to look for high-quality companies which we can buy at reasonable valuations. We believe that valuations in emerging markets are now at very attractive levels alongside long-term growth opportunities that we can back for the next decade. The team is planning many research trips for 2025 to seek out new investment opportunities and update our knowledge of existing holdings. We look forward to sharing more with you as the year progresses.

1 Source: MSCI Index Factsheets as at 31 December 2024. All data USD, total returns.

2 Source: External market research.