Important Note Click to maximise
Important Note I have read and agree, click to minimise

This is a financial promotion for The First Sentier India Strategy. This information is for professional clients only in the UK and 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 strategy invests in assets which are denominated in other currencies; changes in exchange rates will affect the value of the strategy and could create losses. Currency control decisions made by governments could affect the value of the strategy's investments and could cause the strategy 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 strategy'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 strategies 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 strategy. 

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

Monthly Manager Views – India

February 2022

Back on the road, kicking tyres

We have just returned from India – the first investment research trip in India for our entire team in over two years. It was a liberating break from constantly hearing “You’re on mute!” on video calls whilst simultaneously being forced to appreciate your kids’ music lessons in the adjoining room. Saying, “Sorry we are a bit late, the traffic was quite bad,” face-to-face is so much more satisfying!

Readers familiar with our team will know that assessing organisational culture is at the heart of our investment process. In that context, the comparison between meeting the CEO and the senior management team in his or her office versus a zoom call is like chalk and cheese. We can pick up several cues about culture before we even start the meeting. For example, in the composition of the car park, how bureaucratic the visitor check-in process is, whether there is segregation between management layers – right from the elevators they are allowed to use (yes, this is a thing!) – or if there are pictures of the CEO/owner with famous personalities in the boardrooms and so much more. When a new CEO of a company tells us that capital allocation is going to change for the better, we need to see the look in his or her eye and the body language and the mood in the office to believe it. For our team, a return to ‘normal’ feels like a major handicap has been lifted.

So what did we learn, having spent two weeks in Mumbai and meeting with 40 companies? Firstly, the bustle that one usually associates with India’s financial capital is back. It was remarkable to notice activity levels – traffic, crowds at restaurants, queues in hotel lobbies and attendance at offices – rising on a day-to-day basis even during our relatively short trip. If Mumbai is a barometer of the times, the long-promised build-out of urban infrastructure is finally here: an underground metro, reclamation projects to build roads and public spaces, brand new fleets of electric buses, slum redevelopment and so on. The more seasoned among the team would temper our excitement, but we definitely see that there is activity on the ground.

Secondly, the mood among the corporates we met was cautiously optimistic. Some, who have historically stayed away from investing or stepping on the accelerator when their peers were gung-ho, such as Kotak Mahindra Bank and Ambuja Cement, are now talking about doing so. We believe that it will take some time for optimism to become more widespread among our holdings given recent history. Corporate India has experienced numerous challenges over the past decade, including dealing with the fallout of scams after the allocation of natural resources (coal, iron ore, telecom spectrum); the resulting wipe-out of state-owned banks that were guilty of funding most of the said excess; demonetisation; implementation of the nationwide Goods and Service Tax (GST); the Non-Banking Finance Company (NBFC) crisis which indirectly crippled growth for the real estate sector; and several industry-specific regulations (India moved its auto emissions standards from the equivalent of EURO 4 to the latest EURO 6 in just three years vs. nine years in the EU). All of these changes are great for the long term but ended up impairing short-term growth. The country was just about limping back to normality after all this (refer to our updates from end-2019) and then there was an infected bat somewhere…

Over the past two years, most corporates have been in a consolidation mode, shoring up their balance sheets and cutting their operating costs. We have also noticed that leading players in each industry are gaining market share – a natural outcome of regulations that favour organised players and serve to root out companies that have been operating outside the formal economy with respect to taxation and labour laws, etc.

In the near term though, cost inflation is at the top of mind for all the management teams we met. It is clear that margins and working capital will be under some stress in the coming year and it will be a test for managers who have never run companies in severe inflationary environments. We had been surprised at the extent of price hikes undertaken by a wide swathe of companies last year and only now are the effects being felt, with many beginning to see demand-destruction and down-trading. This means that franchises with superior pricing power, and managers adept at maneuvering supply chains and distribution networks through pricing volatility, will emerge stronger in the medium term.

These short-term headwinds aside, as usual, we spent the majority of our time with owners and CEOs, having direct conversations about the issues that really matter – capital allocation plans, board composition, succession, remuneration practices, and environmental and social headwinds that that they face. It is on issues like these that we look for long-term alignment and we enthusiastically report that we find it more among Indian companies than anywhere else.

Despite all its failings, India has managed to recover strongly from the tragic situation it found itself in last year and is well placed to face similar challenges in the future. As someone said to us during the trip, 1.8 billion jabs have gone into Indian arms – all of them made in India, administered by Indians and most importantly, the vaccines certainly work. The underlying ‘order in chaos’ that is characteristic to India is what we like when investing in this market, instead of the seemingly monolithic ‘order’ masking massive underlying chaos in some other places in the world.

 

*Company data retrieved from company annual reports or other such investor reports. Financial metrics and valuations are from FactSet and Bloomberg. As at 18 March 2022 or otherwise noted.

 

Important Information

This material is for general information purposes only. It does not constitute investment or financial advice and does not take into account any specific investment objectives, financial situation or needs. This is not an offer to provide asset management services, is not a recommendation or an offer or solicitation to buy, hold or sell any security or to execute any agreement for portfolio management or investment advisory services and this material has not been prepared in connection with any such offer. Before making any investment decision you should conduct your own due diligence and consider your individual investment needs, objectives and financial situation and read the relevant offering documents for details including the risk factors disclosure. Any person who acts upon, or changes their investment position in reliance on, the information contained in these materials does so entirely at their own risk.

We have taken reasonable care to ensure that this material is accurate, current, and complete and fit for its intended purpose and audience as atthe date of publication but the information contained in the material may be subject to change thereafter without notice. No assurance is given orliability accepted regarding the accuracy, validity or completeness of this material.

To the extent this material contains any expression of opinion or forward-looking statements, such opinions and statements are based on assumptions, matters and sources believed to be true and reliable at the time of publication only. This material reflects the views of the individual writers only. Those views may change, may not prove to be valid and may not reflect the views of everyone at First Sentier Investors.

Past performance is not indicative of future performance. All investment involves risks and the value of investments and the income from them may go down as well as up and you may not get back your original investment. Actual outcomes or results may differ materially from those discussed. Readers must not place undue reliance on forward-looking statements as there is no certainty that conditions current at the time of publication will continue.

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.

References to comparative benchmarks or indices (if any) are for illustrative and comparison purposes only, may not be available for direct investment, are unmanaged, assume reinvestment of income, and have limitations when used for comparison or other purposes because they may have volatility, credit, or other material characteristics (such as number and types of securities) that are different from the funds managed by First Sentier Investors.

Selling restrictions

Not all First Sentier Investors products are available in all jurisdictions.

This material is neither directed at nor intended to be accessed by persons resident in, or citizens of any country, or types or categories of individual where to allow such access would be unlawful or where it would require any registration, filing, application for any licence or approval or other steps to be taken by First Sentier Investors in order to comply with local laws or regulatory requirements in such country.

This material is intended for ‘professional clients’ (as defined by the UK Financial Conduct Authority, or under MiFID II), ‘wholesale clients’ (as defined under the Corporations Act 2001 (Cth) or Financial Markets Conduct Act 2013 (New Zealand) and ‘professional’ and ‘institutional’ investors as may be defined in the jurisdiction in which the material is received, including Hong Kong, Singapore and the United States, and should not be relied upon by or be passed to other persons.

The First Sentier Investors funds referenced in these materials are not registered for sale in the United States and this document is not an offer for sale of funds to US persons (as such term is used in Regulation S promulgated under the 1933 Act). Fund-specific information has been provided to illustrate First Sentier Investors’ expertise in the strategy. Differences between fund-specific constraints or fees and those of a similarly managed mandate would affect performance results.

About First Sentier Investors

References to ‘we’, ‘us’ or ‘our’ are references to First Sentier Investors, a global asset management business which is ultimately owned by Mitsubishi UFJ Financial Group (MUFG). Certain of our investment teams operate under the trading names FSSA Investment Managers, Stewart Investors and Realindex Investments, all of which are part of the First Sentier Investors group.

This material may not be copied or reproduced in whole or in part, and in any form or by any means circulated without the prior written consent of First Sentier Investors.

We communicate and conduct business through different legal entities in different locations. This material is communicated in:[1]

Australia and New Zealand by First Sentier Investors (Australia) IM Limited, authorised and regulated in Australia by the Australian Securities and Investments Commission (AFSL 289017; ABN 89 114 194311)

European Economic Area by First Sentier Investors (Ireland) Limited, authorised and regulated in Ireland by the Central Bank of Ireland (CBI reg no. C182306; reg office 70 Sir John Rogerson’s Quay, Dublin 2, Ireland; reg company no. 629188)

Hong Kong by First Sentier Investors (Hong Kong) Limited and has not been reviewed by the Securities & Futures Commission in Hong Kong

Singapore by First Sentier Investors (Singapore) (reg company no. 196900420D) and has not been reviewed by the Monetary Authority of Singapore. First Sentier Investors (registration number 53236800B) is a business division of First Sentier Investors (Singapore).

Japan by First Sentier Investors (Japan) Limited, authorised and regulated by the Financial Service Agency (Director of Kanto Local Finance Bureau (Registered Financial Institutions) No.2611)

United Kingdom by First Sentier Investors (UK) Funds Limited, authorised and regulated by the Financial Conduct Authority (reg. no. 2294743; reg office Finsbury Circus House, 15 Finsbury Circus, London EC2M 7EB)

United States by First Sentier Investors (US) LLC, authorised and regulated by the Securities Exchange Commission (RIA 801-93167).

Other jurisdictions, where this document may lawfully be issued, by First Sentier Investors International IM Limited, authorised and regulated in the UK by the Financial Conduct Authority (registration number 122512; registered office 23 St. Andrew Square, Edinburgh, EH2 1BB number SC079063).

To the extent permitted by law, MUFG and its subsidiaries are not liable for any loss or damage as a result of reliance on any statement or information contained in this document. Neither MUFG nor any of its subsidiaries guarantee the performance of any investment products referred to in this document or the repayment of capital. Any investments referred to are not deposits or other liabilities of MUFG or its subsidiaries, and are subject to investment risk, including loss of income and capital invested.

© First Sentier Investors Group

[1] If the materials will be made available in other locations, seek advice from Regulatory Compliance.

Related

/// Call-to-action component to come ///