Important Note Click to maximise

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.

FSSA Investment Managers - India Monthly Manager Views

As the saying goes, “There are two kinds of forecasters: those who don't know, and those who don't know they don't know.” Recently, we have seen hordes of the latter kind, garbed as analysts, Unicorn founders, freshly-minted CEOs and so-called “experts”, as they engage in modern-day snake oil salesmanship, which is what seems to pass for Fundamental Equity Research these days. The difference between making forecasts and predictions is the difference between a rational investor and a soothsayer. Today, there are a number of companies and analysts who desperately pretend that a different set of rules apply to them. To that end, they have even invented a new jargon-littered language that has been enthusiastically adopted by the investing community. Some of the words and phrases being used (and over-used) these days make us wince. Let’s look at a few.

“TAM” or Total Addressable Market: When I started my career as an analyst 20 years ago, certain things were key to forecast what might become of a business over the long term (i.e. five to ten years). These included an understanding of the market size of a product or service and its growth potential; assessing why certain businesses in that industry were doing better or worse than others; and evaluating the management quality and figuring out the alignment (both financial and cultural). Today, it feels like all that analysis is now captured in one word, “TAM”, which companies are helpfully providing to analysts and they, in turn, end up using it as a fig leaf to justify almost anything — from the current small scale of the business, the pitiful margins, the ridiculous sales/marketing strategy and, of course, the outrageous valuation. It feels like the time when people used to mention enterprise value (EV)/ click or EV/eyeballs or EV/square foot.

Unit Economics: We used to think that, for young businesses, one needs to see if it is able to generate a positive contribution margin to cover some of its fixed costs and then calculate how long it would take to achieve breakeven. But in the “free money” era, the term has become convoluted, as analysts are rewarding businesses who don’t want to do any of that. Customer Acquisition Cost is the new buzzword and Unit Economics have been reduced to some sort of weird distortion aimed at justifying massive upfront costs. We used to look at how much a company is spending on sales and marketing, analyse the mix of short-term promotions and long-term advertising (good old above and below the line costs — where is the line now we wonder?), how the sales team was organised, their incentive structures and what a business was doing to prevent mis-selling. Nowadays, that seems like a primitive way of trying to understand basic unit economics; what the phrase now means is anyone’s guess!

Value Proposition: “What is your value proposition?” analysts are asking companies these days. But, isn’t that something that the analyst needs to figure out? By all means, ask the management for their views, but regurgitating those same views without critical reasoning is pointless, in our view. What is it that makes a company generate superior returns on capital employed (ROCE) and what makes its growth and returns sustainable? It could be many things — a brand, technology, license, etc. But what we have been hearing (and what is often not said) is that the only value proposition many of these new businesses have is access to unlimited, unabashed funding.

Flywheel: A surprising number of management teams we meet these days are hard at work pushing “Flywheels” as they attempt to defy the gravity of flawed business models. The term was made popular by Amazon as a way to describe the virtuous cycle that happens when the whole business model is aligned to offer a remarkable customer experience. But it seems the term is now being used instead to provide a remarkable initial public offering (IPO) roadshow experience, which the analysts are lapping up.

Pivot: We have heard this word more in the last 12 months than ever before. Companies now are desperate to tell analysts their pivots in life; and they are pivoting quite often to the next fancy thing, which salivating analysts are gobbling up as it helps them to see the almighty “Path to Profitability”.

Path to Profitability: Another recent favourite. By brewing a concoction of TAM, Value Proposition and Unit Economics, with some Flywheels and Pivots along the way, the modern soothsayers are able to discern a “Path to Profitability”. The whole sham is not unlike TV evangelists prescribing a path to heaven that they have divined. I am sure the CEOs of some of these companies would secretly love to find this path to the Promised Land that seems so obvious to some investors.

As more and more people are pivoting away from common sense, our team is resolved NOT to pivot away from our (admittedly) boring way of investing. We have been through these manias before and now, more than ever, we must be vigilant. Our goal is to keep it simple — preserve our clients’ capital and grow it steadily by investing in good businesses, run by good people, for the long term.

* Company data retrieved from company annual reports or other such investor reports. Financial metrics and valuations are from FactSet and Bloomberg. As at 30 September 2021 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 consider, with the assistance of a financial advisor, your individual investment needs, objectives and financial situation.

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. No assurance is given or liability accepted regarding the accuracy, validity or completeness of this material and we do not undertake to update it in future if circumstances change.

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.

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. 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.

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)

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