Indian Subcontinent: The Decade Ahead

Risk Factors

This document is a financial promotion for the Stewart Investors Indian Subcontinent Sustainability Fund (ICVC) intended for retail and professional clients in the UK, professional clients in Switzerland and professional clients elsewhere where lawful. 

Investing involves certain risks including:

  • The value of investments and any income from them may go down as well as up and are not guaranteed. Investors may get back significantly less than the original amount invested.
  • Specific region risk: investing in a specific region may be riskier than investing in a number of different countries or regions. Investing in a larger number of countries or regions helps spread risk.
  • Indian Subcontinent risk: although India has seen rapid economic and structural development, investing there may still involve increased risks of political and governmental intervention, potentially limitations on the allocation of the Fund’s capital, and legal, regulatory, economic and other risks including greater liquidity risk, restrictions on investment or transfer of assets, failed/delayed settlement and difficulties valuing securities.
  • Currency risk: the Fund invests in assets which are denominated in other currencies; changes in exchange rates will affect the value of the Fund and could create losses. Currency control decisions made by governments could affect the value of the Fund's investments and could cause the Fund to defer or suspend redemptions of its shares.

For a full description of the terms of investment and the risks please see the Prospectus and Key Information Document.

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. Reference to the names of any company is merely to explain the investment strategy and should not be construed as investment advice or a recommendation to invest in any of those companies.

If you are in any doubt as to the suitability of our funds for your investment needs, please seek investment advice.

The Fund did well in 2020, thanks in part to the generosity of central banks globally, while the real economy tried to shake off a pandemic. However, we believe that the real opportunity for investors in the subcontinent should be in the decade ahead. We are optimistic for two reasons.

1. Many macro-economic factors are beginning to turn in India’s favour

One may conclude from the past decade that India is likely to remain a low-growth economy. We disagree. Many ingredients are now in place for a revival in economic growth and sustainable development. Below are some of the macro-economic tailwinds that contribute to this view. 

  • A lower carbon future
  • A potential revival in infrastructure investment
  • A potential revival of the manufacturing sector
  • A global health crisis that has further strengthened India’s IT services and pharmaceutical companies
  • A potential resurgence of the property cycle

A lower carbon future 

India has only produced 3% of total carbon dioxide emissions historically1. Surprised? We were too! The United States, Europe and China have together contributed 60%1. As a signatory to the Paris Agreement, India has committed to reduce carbon intensity by 33-35% by 20302. As part of this journey, 175 gigawatts (GW) of renewable generation capacity is already commissioned or in construction by 2022, up from just 34 GW in 20143. Falling solar prices could help India reach its target of 450–550 GW by 2030 or 60-65% of total generation capacity3. Changes in vehicle emission norms to European standards, rapid evolution of electric vehicle (EV) technology and introduction of scrappage vehicle policies should further reduce emissions intensity and improve the country’s finances. These are sound reasons to believe India will not follow a similar carbon-intensive development path as the west or even China. 

A potential revival in infrastructure investment 

Infrastructure investment has been India’s Achilles heel. It could well be its champion in the next decade. For instance, construction of new roads has continued behind the scenes at a good pace in the last five years. Private investments and participation have now begun to improve in areas such as airports, gas and power distribution, renewable energy and even parts of the railways. The government has embarked on many difficult but essential reforms in agriculture and labour markets. The pace of reforms is likely to be dictated by acceptance from various stakeholders. Such checks and balances are sometimes necessary to ensure the benefits of development are widespread and equitable. 

Source: Ministry of Road Transport and Highways, Indian government. *Target for 31 March 2021.

Funding availability and lower interest rates are necessary ingredients to fuel an investment cycle. The previous cycle was overly dependent on the state banking system as a funding source. Today, insurance companies, infrastructure investment trusts, corporate bond markets and large well-capitalised private banks can participate in financing infrastructure. Unlike what we see elsewhere, corporate and bank balance sheets have been slow to repair in the last decade. The insurance industry’s assets have grown to USD600bn from just USD200bn a decade ago4. Approximately USD18trn in global debt earns negative returns4. If India keeps the inflation genie in the bottle, it could become an attractive destination for long-term debt capital. Interest rates today are at least 5%, which is 6% lower than the previous investment cycle4

A potential revival of the manufacturing sector 

India’s manufacturing sector is showing early signs of promise. While the government encourages investment in local manufacturing through attractive taxation and labour reforms, the case is becoming stronger from the bottom-up via productivity improvements. A large domestic market, improving infrastructure and the need to diversify global supply chains due to geopolitical tensions, add wind to India’s manufacturing sails. Apple’s suppliers have invested close to a billion dollars to set up manufacturing units recently5. Many home appliance producers are localising manufacturing through companies such as Dixon Technologies and Amber Enterprises. These are still early days but the conditions are far better today for Indian companies to become competitive at a global scale in this area.

Source: Country government statistics and OECD, 2020.

A global health crisis that has further strengthened India’s IT services and pharmaceutical companies 

A crisis is an opportune time to build trust. Companies with time horizons spanning decades understand this well. Despite unexpectedly extreme conditions, companies such as Tata Consultancy Services and Infosys ensured uninterrupted services to their clients by swiftly enabling hundreds of thousands of employees to work remotely. A monumental task given their scale. Clients rewarded them with USD40bn in new business during a pandemic6. A sign of trust! Indian pharmaceutical companies have long provided affordable drugs to the world. Companies like Serum Institute and Dr. Reddy’s are preparing to produce billions of doses of affordable vaccines. The trust earned by supplying these at a reasonable cost should help cement their role as providers of quality affordable healthcare globally for decades to come. We believe that trust is one of the best barriers to entry for any business. 

A potential resurgence of the property cycle 

“More than ever before, people will want to own their homes. People will go to any length to hold on to their homes” – says Deepak Parekh’s (Chairman of HDFC) in his 2020 letter to shareholders7. Structural changes are afoot in how people view homes and the need for work spaces within homes. And property is more affordable today than at any time in the last 25 years7. Tax incentives for affordable housing materially reduce the cost of servicing mortgages. India remains one of the most attractive mortgage markets in the world due to low home ownership, low mortgage penetration and a young population. Mortgages would have to grow at twice the rate of GDP in the next 10 years just to catch up with China. This presents favourable conditions for the start of a multi-year property cycle. 

Source: HDFC Investor Presentation December 2020. Data reflective of HDFC’s customer base.

2. Quality companies should benefit disproportionately from macro-economic tailwinds 

India is home to many high-quality companies. We have been saying this for many years. We are particularly excited by the resurgence of good old-fashioned Indian conglomerates - the Tatas, Murugappas and Mahindras. The Fund has around one-third of its assets invested across many companies stewarded by these groups. These companies engage in diverse businesses which are well positioned for sustainable development in the region.

It is difficult to reconcile with the unceremonious removal of Tata Sons’ previous Chairman Cyrus Mistry. But it is equally difficult to disagree with the choice of his successor – Natarajan Chandrasekharan, the former CEO of Tata Consultancy Services. Over the last four years, Chandra has been resolute in rekindling a culture of focus and performance, while holding on to the group’s cherished ethos and long termism. The group now desires less risky balance sheets while tilting its emphasis back to India after a decade of outward investments. Microsoft, under the leadership of Satya Nadella, is a good example of the potential returns investors can reap when good groups find quality managers to steer them ahead.

Source: Stewart Investors as at 28 February 2021.

The Murugappa Group felt the overhang of an inter-generational leadership transition within the family. The succession is now firmly in place and the group is becoming bolder in its aspirations. Tube Investments, headed by Vellayan Subbiah, is one of the largest holdings in the Fund. The recent acquisition of CG Power, a maker of industrial motors, is a clear sign that Tube Investments has set its sights on becoming a leading engineering conglomerate. We believe that the group’s multi-decadal time horizons, competent leadership and conservative approach to financials make them well positioned to succeed.

The Mahindra Group had two wonderful decades under the stewardship of Anand Mahindra. However, a global expansion in automobiles and some investment choices away from their core strengths set them back recently. Incoming CEO Anish Shah has spent the last six years understanding the group’s history, culture and evolution. He has sought inspiration from how the Mahindras responded to the oil crisis in the 1970s and to the dotcom bubble in the late 1990s. A raging pandemic did not stop the group from admitting to some of their recent strategic mistakes. Much of the repair is now well underway, paving the way for an exciting decade ahead. 

In each of these groups, a generational transfer of leadership is leading to an exciting future. These institutions have survived and thrived over generations, partly because of their ability to admit to mistakes and correct the course when necessary. A rare and exceptional quality. This combination of internal improvements under highly competent leaders, in addition to macro tailwinds, could prove to be powerful for investment returns. 

Risks are often misunderstood

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 ongoing farmer protests in India are 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. India’s vibrant and often loud democracy is misunderstood as chaotic and risky. 

We believe the opposite is true. The ability of companies and society to engage with governments and hold them accountable where necessary is key for the sustainable development of economies. We struggle far more with the opacity and the binary risks that come alongside investing in authoritarian regimes. 

Investing in the subcontinent is not without risks and potential market volatility. Fragile borders, water shortages, rising social divisions and climate change are key challenges. Moreover, society still has a pandemic to deal with. Quality private companies operating in unfavourable macro-economic conditions drove the Fund’s returns in the last decade. We believe that many conditions should turn favourable and with good reason. We are optimistic that the subcontinent should reward patient investors with sound absolute returns in this decade. 

Sashi Reddy
March 2021


Fund performance review 

Discrete annual performance (% in GBP net of fees)

Period 12 months to 28/02/21 12 months to 28/02/20 12 months to 28/02/19 12 months to 28/02/18 12 months to 28/02/17
Class A shares 25.9 0.0 -0.3 6.7 37.6
MSCI India Index 17.9 5.0 -2.4 9.4 41.5

Discrete annual performance (% in GBP net of fees)

Class A shares

12 months to 28/02/21
12 months to 28/02/20
12 months to 28/02/19
12 months to 28/02/18
12 months to 28/02/17

MSCI India Index

12 months to 28/02/21
12 months to 28/02/20
12 months to 28/02/19
12 months to 28/02/18
12 months to 28/02/17

Calendar performance (% in GBP net of fees)

Period 2016 2017 2018 2019 2020
Class A shares 20.5 18.4 2.3 -3.9 18.1
MSCI India Index 17.6 26.7 -1.5 3.4 12.0

Calendar performance (% in GBP net of fees)

Class A shares


MSCI India Index


These figures refer to the past. Past performance is not a reliable indicator of future results. For investors based in countries with currencies other than GBP, the return may increase or decrease as a result of currency fluctuations.

Source for Stewart Investors Indian Subcontinent Sustainability Fund: Lipper IM/Stewart Investors. Performance data is calculated on a net basis by deducting fees incurred at fund level (e.g. the management fee and other fund expenses), save that it does not take account of initial charges or switching fees (if any). Income reinvested is included on a net of tax basis. Source for benchmark: FactSet, income reinvested net of tax. Since launch performance calculated from 15 November 2006.

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Important Information

This document has been prepared for informational purposes only and is only intended to provide a summary of the subject matter covered and does not purport to be comprehensive. The views expressed are the views of the writer at the time of issue and may change over time. It does not constitute investment advice and/or a recommendation and should not be used as the basis of any investment decision. This document is not an offer document and does not constitute an offer or invitation or investment recommendation to distribute or purchase securities, shares, units or other interests or to enter into an investment agreement. No person should rely on the content and/or act on the basis of any material contained in this document. 

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