India continues to be seen as the best structural growth opportunity in emerging markets, and even in the world, according to recent research. A due diligence trip to Mumbai consisting of over 40 meetings with various stakeholders left investors enthusiastic about India’s investment prospects in both the near and long term.
One significant development that indicates momentum is JPMorgan’s announcement that it will include India in its widely tracked JPMorgan Chase Government Bond Index – Emerging Markets from June 2024 onwards. If FTSE and Bloomberg follow suit, it is estimated that there could be a potential USD 45 billion inflow to India over the next two years. This injection of capital would support the currency, keep inflation in check, and provide additional liquidity for the ongoing capex cycle. This development suggests that the country’s capital markets are deepening, investment will likely continue, wages are expected to grow, and consumption could increase exponentially.
During the trip, it was also encouraging to see Mirae Asset and Global X’s brand maintain a leadership position in the Indian asset management landscape, demonstrating their strength and expertise in capitalizing on India’s growth potential.
Several factors contribute to India’s attractiveness as an investment opportunity. The country possesses attractive demographics, unique supply and demand dynamics, high barriers to entry, and a stable democracy. India now has the largest population in the world, with the largest youth population as well. Its predominantly young and educated population is well-equipped to contribute to services, manufacturing, and consumption. The government’s recent focus on increasing home ownership could lead to increased collateral, credit, investment, and consumption as well.
There are three specific structural reasons why India presents an elevated return profile. Firstly, the market is heavily weighted towards consumption, with sectors such as financials, information technology, consumer discretionary, and healthcare making up a significant portion of the market capitalization. Secondly, India’s diverse languages and cultural barriers create high barriers to entry, providing market leaders with pricing power and other advantages over competitors. Lastly, India tends to wait for a buildup of demand before creating supply, which increases capacity utilization rates and improves return profiles.
Investors are also comforted by the fact that India has a democratically elected government. The country’s massive diversity in languages, religions, and caste distinctions makes a democratic system the best way to maintain a unified India. Current election polls suggest continuity, given the government’s progress with economic reforms and social welfare schemes.
One significant opportunity lies in India’s domestic consumption. With a large percentage of the population being below the age of 35, there is a long-term window for companies to tap into the growing spending power of millions of individuals. The combination of demographic trends and digital connectivity has created a drive for aspirational spending and increased reach via e-commerce. This presents consumer companies with a larger and wealthier client base than ever before.
Digital banking has also made significant progress in India, allowing for cost efficiencies, streamlined processes such as know your client (KYC), and cross-selling opportunities. United Payments Interface (UPI), the national digital payment system, has facilitated digital transactions, while Aadhaar and the Goods and Services Tax (GST) have simplified cross-state shipping and built credit profiles for companies.
The e-commerce sector is also thriving, with high growth projected in categories such as online groceries. Digital-first consumer brands are dominating the market and are expected to continue their rapid growth. Additionally, the online grocery industry is forecasted to reach a market value of $930 billion by 2027.
Overall, India’s structural growth prospects, supported by demographics, supply and demand dynamics, high barriers to entry, and a stable democracy, make it an attractive investment opportunity.