People often view India as a binary investment case. It is either good or bad; the right time to be in or about time to get out.
Yet foreign direct investment (FDI) inflows show a different story. Last year India was one of only two countries in the world to see FDI inflows rise – up by 13 per cent from 2019 figures to $57bn. The other country was China (up by 4 per cent year-on-year to $163bn), according to data from the United Nations Conference on Trade and Development.
Meanwhile, the IMF has predicted India will be the fastest growing economy in the world in fiscal year 2021, with a forecasted 11 per cent growth rate. This makes it the only major economy to register double-digit growth. China, by comparison, is projected to grow 8.1 per cent during the same period.
With statistics like these, it’s no wonder some commentators believe India will be the world’s largest economy by 2050.
The real story
But regardless of where it sits in the economic charts over the next few decades, there are two data points that really encapsulate the investment opportunity for us:
- India has a very young population – the median age is estimated to be 28, which means half the population is younger than that (according to Statista).
- Its GDP per capita is around $2,000 (2019), according to the World Bank
These two statistics alone present a compelling investment case for India.
Think about what happens when an individual’s income goes from $2,000 to $4,000 per year; the ownership and experiences that open up for them.
GDP per capita increased in China between 2005 and 2015. During that period, Chinese GDP per capita grew from $2,000 to around $8,000. Unsurprisingly, discretionary consumption categories in the market grew multi-fold at the same time. Whilst we do not expect the same level of growth as China, we do expect consumption in India to follow the same trend.
Once the basics are covered, people start to look at buying a car or a scooter, or getting a mortgage on a property. They then might look to insure these assets or to buy life insurance to protect their family’s financial security should anything happen to them. Currently, there is only a 3.7 per cent penetration rate for insurance in India and only 3 per cent penetration for cars.
The ‘Insta’ effect
We recognise that demographics alone cannot ensure economic growth. But add a healthy dose of aspiration into a young population and you start to see where the impetus will come from.
This aspiration is driven by a surprising force: India has the lowest data costs of anywhere in the world. As a result, the engagement of its population with apps such as Instagram and WhatsApp – even in rural areas – is immense.
On these apps, young Indians see Bollywood actors driving scooters and drinking beers (not at the same time we hasten to add) and they want in on the action. Out of the 1.3 billion population in India, the leading beer maker United Breweries believes its ‘addressable market’ to be 150 million people – a figure it hopes to double to 300 million by 2025, helped along by nearly 20 million people reaching ‘drinking age’ each year. Currently United Breweries has a 52 per cent market share.
Domestic travel is another sector that has been recovering sharply. IndiGo, the country’s largest (and low cost) airline, recently reported domestic operations have reached 80 per cent of pre-pandemic levels and expects 100 per cent capacity by the end of the year.
Likewise, Indian Hotels, which owns and operates the luxury Taj Hotels brand in India, saw 90 per cent occupancy in the last week of December 2020 at their leisure hotels as domestic tourism rebounded rapidly. The hotelier has also opened five new hotels between October and December last year and plans to launch a further six in the first half of 2021, as it looks to capitalise on the pent-up demand for leisure time (also being termed ‘revenge tourism’).
This domestic resilience is another characteristic that sets India apart from other emerging economies: It doesn’t need to do business with the world to flourish. While China is busy trying to pivot towards a domestic consumption-led economy, India is already there.
Andy Draycott and Abhinav Mehra are the investment team on the CC Indian Subcontinent fund. The views expressed above are their own and should not be taken as investment advice.