This is a financial promotion for The First Sentier India Strategy. This information is for professional clients only in the EEA and 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.
- 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.
- 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.
- Single country / specific region risk: investing in a single country or 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.
- Smaller companies risk: Investments in smaller companies may be riskier and more difficult to buy and sell than investments in larger companies.
For details of the firms issuing this information and any funds referred to, please see Terms and Conditions and Important Information.
For a full description of the terms of investment and the risks please see the Prospectus and Key Investor Information Document for each Fund.
If you are in any doubt as to the suitability of our funds for your investment needs, please seek investment advice.
India: Backing good people running good businesses is the key
From our discussions with companies in the FSSA Indian Subcontinent equity strategy, it is clear that they are well-positioned to deal with the impact of the second wave of the virus on their businesses.
They have set up effective ways for their employees to work remotely and interact with their customers, suppliers and channel partners in the absence of in-person communication, and strengthened their balance sheets during the unprecedented lockdown last year.
We have also witnessed companies’ relentless efforts to ensure the safety of their employees and local communities. The human impact of Covid has undoubtedly been devastating; and in many other countries, such measures are the responsibility of governments. In India, it has been the socially-responsible, private companies that are leading the efforts to battle Covid-19.
Companies such as Infosys, Tata Consultancy Services (TCS), HDFC Bank and Hindustan Unilever – among the largest private employers in India – have partnered with thousands of hospitals across the country to provide free vaccinations for their employees. Additionally, the IT services companies have turned their campuses into vaccination centres; Bosch, a leading auto component company, has created Covid-care facilities for the broader community on its campus; and HDFC Bank has partnered with hotels across India to provide isolation facilities and e-consultations with doctors for affected staff.
In terms of portfolio impact, we have closely followed earnings across our portfolio companies to assess how successfully they have emerged from the initial impact of the pandemic. As a team, we seek to invest in high-quality companies with strong management teams, dominant franchises and solid financials. We think of risk in terms of losing money rather than underperforming the index; hence, capital preservation is key to us.
With this mindset and survival instinct, we have steered the portfolio towards stronger balance sheets, and the more liquid and bigger companies which we believed could withstand volatility better during these uncertain times. These companies have demonstrated their inherent management and franchise resilience over the course of the pandemic.
In the quarter ended December 2020, median revenues across our portfolio holdings grew by 14% and median profits by 18% over the same period in the previous year. Growth accelerated in the most recent quarter to end March 2021, as median revenues across the portfolio’s holdings grew by 26% and profits by 39% over the same period last year (albeit on a lower base, due to the initial impact of Covid-19). Cash flows have been strong and the balance sheets of almost all our portfolio companies remain in net cash positions (1).
Meanwhile, although recent political events may cause short-term turmoil, we believe that they should not have a significant impact on our company holdings in the long run. Since the early 1990s, as the India market was opening up, there has been a government that lasted for 10 years and a government that lasted for two weeks.
However, there is always a degree of policy continuity, regardless of which government is in power. One example is the Goods & Services Tax (GST), which has been in the making for the last 15 years – a period over which there have been different governments in power from different parties and ideologies. Each of those governments took the regulation forward and enacted it.
We believe that by investing in the right companies in the right industries – particularly those with strong balance sheets and high return on capital – the politics does not matter. These companies have the potential to prosper irrespective of the political party in power.
(1) Source: Bloomberg, FSSA Investment Managers, as at 31 May 2021
Source: Company data retrieved from company annual reports or other such investor reports. Financial metrics and valuations are from FactSet and Bloomberg. As at end June 2021 or otherwise noted.
Note: 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 the same. All securities mentioned herein may or may not form part of the holdings of FSSA Investment Managers’ portfolios at a certain point in time, and the holdings may change over time.
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