Praveen Jagwani, CFA – July 2020
The world is going through a profound transformation as we de-globalize and learn to cope with Low Growth, Low Interest-Rates and Higher Unemployment.
In this changing world order, India has emerged as a strong player. The sheer scale and stability of its democratic ethos have given India geopolitical significance. Its robust and sustainable economy is expanding faster than all the developed countries and most emerging countries. The pandemic is unlikely to disrupt this growth trajectory structurally.
There are three main reasons why India presents a compelling investment opportunity for the medium to long term.
1. Domestic Consumption drives India’s growth, not Exports
Domestic Consumption forms 65% of India’s GDP, while Merchandise Exports constitute only 12%. A young, hard-working, consuming and upwardly-mobile middle class insulates India from global challenges. Rapidly rising per-capita-income of 1.3 billion people makes the growth sustainable. The per capita consumption of everything from digital data, education, electricity, automobiles, medicines, protein is below even Emerging market standards. Thus the headroom available for growth, in the years to come, is massive. India’s average age is just 28, and the labour cost is one of the lowest in EM countries, making it an attractive manufacturing destination.
2. Indian Culture – Entrepreneurship
Almost 50% of India’s GDP emanates from the Informal sector or what we call casual entrepreneurship. Of all employed people in India, more than 85% are in the Informal sector, half of which are in Agriculture. The timeless resilience of this spirit of entrepreneurship is central to India’s sustainable growth. The Government and Big Business have little role to play in this space. Small businesses across Services and Manufacturing, particularly in non-urban India underpin the strength of the economy. Examples include Food-processing, restaurants, handyman services, delivery services, automobile repairs which are driven by local demand and not cyclical.
3. Global Relevance
India, as a reformist liberal democracy, has become geopolitically very relevant in an environment of Trade-wars, Brexit and disruption of global supply chains. While China remains the dominant player, global businesses are looking to diversify their risk and manufacturing bases. Progressive reforms, Political Stability and Rule of Law differentiate India from the competition. As an example, in 2019 India transitioned from an importer of mobile phones to an exporter. Both Samsung and Apple manufacture a significant portion of their handsets in India. Recognizing India’s advantage of potential scale, giants like Walmart, Amazon, Google, Foxconn, KKR, Softbank, Facebook and Microsoft are all investing billions of dollars into India.
Signs that India is the next big investment story:
India’s GDP is expected to grow by 7%-8% for the next few years. India is already the 4th largest economy in the world, having surpassed UK & France recently.
The FDI received until Jun’20 has exceeded $58 Billion. In 2019, India attracted the 8th highest FDI flows globally at $49 Billion.
MSCI is actively considering increasing India’s allocation in the EM index.
Domestic Investors are adding approximately $1 Billion a month to equities since 2018.
India’s Forex Reserves crossed USD 0.5 Trillion to become 5th largest in the world.
Indian Rupee remains one of the least volatile currencies in the Emerging Markets.
IMPORTANT LEGAL INFORMATION
The document does not constitute an offer for share/units and is neither a recommendation nor statement of opinion or an advertisement. It does not constitute any prediction or any representation of likely future movements in rates or prices of any securities. The content of the statement above is for information purpose only without regard to the specific objectives, financial situation and particular needs of any specific person who may receive this statement. Users of this document should seek advice regarding the appropriateness of investing in any securities, financial instruments or investment strategies referred to on this document.
This document has not been reviewed by the Monetary Authority of Singapore.
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