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This is a financial promotion for FSSA India Subcontinent Strategy. This information is for professional clients only in the UK 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.

Heroes & Villains

“For everything you say about India, the opposite is also equally true,” said a senior coporate executive, paraphrasing a quote from the British economist Joan Robinson, when we met him in India recently. This rings true in our minds, particularly these days as the world looks at India’s business families with a tinge of suspicion following the recent wall-to-wall media coverage of a short-seller’s report on a large Indian business group. For our part, we are quite happy with our investment biases that, in fact, favour backing some of India’s best business families. However, it is true that for every Indian family-owned business that has high standards of governance and has created enduring shareholder value over decades, there are several that we would never think about investing in.

We like family-owned businesses because they take a long-term view about their business – they think in terms of multiple generations, as good stewards of capital must. They think of long-term headwinds and tailwinds and adjust their business models on that basis, paying attention to capital preservation and staying in the game for decades to come. We have often found this aspect lacking in businesses where there are no long-term stewards; and in effect, they simply become management enrichment schemes that are run on the basis of perverse short-term incentives. This has been one of the reasons why we have remained on the sidelines with new listings over the last two years, where businesses that are majority-owned by private-equity funds (which themselves are constrained by the time horizon of their funds) have grown too quickly in some cases, perhaps without the conservative mindset that we like.

Generally, over the past 20 years governance standards in India have improved across various aspects. This process has been punctuated by occasional stock-market scams or corporate failures, which have served as catalysts for regulators to design better rules to protect minority shareholders. For example, regulations improved in the aftermath of a rash of privatisations by the listed subsidiaries of multi-national corporations (MNCs) in India during 2003-2007 at low-ball prices. Now, minority shareholders are protected from predatory privatisation attempts, as these require the approval of a majority of minority shareholders (at 2:1) and price discovery for privatisations is via a reverse book-building process. Tag-along regulations also exist, preventing the owners of businesses selling their stakes at preferential prices. Similarly, related-party transactions are closely monitored and need the approval of minority shareholders beyond a certain threshold – this means that practices such as parent companies charging excessively high royalty/license fees to local subsidiaries are not possible in India. Further, the role of the board has been continually strengthened – current laws require majority independent boards and nudge them to split the role of chairperson and CEO. In addition, there are limits imposed on the tenure of independent directors and auditors.

All of this, and much more, has meant that Indian equity markets are actually among the best-regulated across comparable emerging markets. This is reflected in increased institutional and particularly foreign ownership. Around 20 years ago, only 70 or so Indian companies had a foreign shareholding of more than 1%, a number that stands at over 700 today. Generational change is another driver of higher governance standards – children of first-generation entrepreneurs are typically better educated and have some work experience in large organisations, where they observe the benefits of good governance (better talent, valuations, lower stress). When they take over the family operations, they tend to improve governance standards – e.g. whereas the previous generation might have obsessed about saving (evading) tax, the next generation would see the benefits of compliance in terms of raising external capital etc. During our recent research trip to India, most corporates said to us that India is now a third-world country with first-world compliance, which favours businesses operating in a sustainable manner. Finally, India’s pool of managerial talent has greatly benefited from the existence of well-established multi-national subsidiaries, such as Hindustan Unilever, which have been operating in the country for many decades. Apparently, today there are some 500 CXOs1 in Indian companies from Hindustan Unilever alone. Over the years, thousands of young managers have travelled extensively to other markets and learnt best-in-class management techniques, all of which they bring to local family-owned companies looking to professionalise – we have seen this first-hand in several instances and are always on the lookout for such investment opportunities.

However, these are still exceptions and not the rule. It would be a monumental mistake to think that all business families in India are so forward-thinking and considerate to stakeholders. Any investor with such notions would find themselves staring at several write-offs in their Indian portfolio. Our investment process is designed to eliminate such risks. For instance, when we meet a company for the first time, we hardly discuss the business itself. Instead, we focus on the key people and their journeys. Quite often there is an “Original Sin” (an outright crime or a grey area from which the founder benefited), from which a business is born, and we delve into the changes in mindset since then. It is a question of judgement, as with most things in our profession. In other instances, we spend time meeting the independent directors of a company, to assess whether they are truly performing their duty as a check against the (sometimes unfair) wishes of the founders/family. Reputation checks via asking trusted business owners and managers is also important, and we have side-stepped many a landmine over the years in this fashion. So, before we even start to analyse the business model of a company, there are several important questions that need to be answered satisfactorily. Otherwise, in our view, we might end up failing to protect our clients’ capital.

As we have mentioned in previous letters, one of the core beliefs of our team is that not everything has a price. If our assessment of a company’s owners and managers is not up to the mark, we simply will not invest, regardless of the valuation or seeming strength of the franchise.

Returning to our meeting with the senior executive, he concluded, “If you take a picture of India, it always looks chaotic and ugly, but if you view it as a movie, it is a good one. And in Bollywood, there is always a happy ending!” We think along the same lines when it comes to investing in India. At any given point of time, the companies we meet and invest in don’t always “look” good. But, as we often say when referring to companies, one must travel and not arrive. The direction of travel and the spirit with which the owners and managers are making decisions is more important than how good the narrative is or how glossy the Sustainability Report. We love the movie that is India – it is long, it never goes in a straight line (and sometimes even backwards), but in the end, the good guys always win!

1 CXOs – c-suite executives

Investment insights

The FSSA team - Vinay Agarwal, Sreevardhan Agarwal and Shivika Srimal – has always found great investment opportunities in the India market, and believe that the pool of investable companies is growing every year. In this note, they share how the investment themes in India have evolved and what excites them as they look ahead to the future.
  • Video
  • 15 mins
We already have (exposure) to India via our Asia and Regional funds. We often hear this comment from prospective clients who are considering an investment in the FSSA Indian Subcontinent strategy, but are not yet convinced that a dedicated allocation would indeed be worth it.
  • Article
  • 3 mins

Source: Company data retrieved from company annual reports or other such investor reports. Financial metrics and valuations are from FactSet and Bloomberg. As at 14 February 2023 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 at the date of publication but the information contained in the material may be subject to change thereafter without notice. No assurance is given or liability 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.

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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.

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