India: Field Trip Feedback And Re-Assessment

Tue 27 Mar 2018

By Brian Dennehy

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We have highlighted the opportunity in India for many years, even before the election of Prime Minister Modi in 2014. In this article I will want to re-visit that longer term potential, review the recent action, and consider the issues which will dominate in the 12-24 months ahead.


November 2008 was an ugly period for markets and the global economy. Almost overnight both seemed to have ground to a halt, and I recall on TV saying that it was as if someone had simply pressed the “off button”. Yet when I spoke with Avinash Vazirani (manager of Jupiter India) I got a very different impression. He had just returned from Mumbai and his overwhelming impression was of people smiling, and a country that seemed unaware of or unaffected by the deep global troubles.

We felt that in the years ahead India’s youth (50% of the 1.2 billion are aged under age 25) would demand that action was taken to release their potential. So, while the shorter term was uncertain, we were sufficiently confident to make India one of our Trades of the Decade (the other being Japanese smaller companies).

With the over-whelming election win Narendra Modi in 2014, the Indian electorate took a huge leap forward giving their backing to the reform agenda of his BJP party.

Progress could never be fast for such a huge nation, with entrenched corruption and individual States with considerable law-making powers.  But the upside potential was clear.  GDP per head is just $7,200 compared to $43,600 in the UK and $59,500 in the US (Source: CIA World Facts, 2017 est.).

Reforms have come thick and fast (see previous blog) and despite some short-term pain for the country, the electorate continued to show their support for Modi in the State elections towards the end of 2017.  This enthusiasm was underpinned by economic growth (GDP) edging towards 7%.

Stock Market Stagnated In 2017

Nonetheless, the Indian stock market stagnated compared to other major indices in 2017.  The FTSE India index was up 28.9% over 2017 compared the US and UK up 10.6% and 11.95% respectively.  And India has got off to a poor-ish start to 2018, down 10.86%, though others are also down with the US off 5.1% and the UK off 9.47%.

Feedback From Recent Field Trip

The Goldman Sachs (GS) team toured India earlier in February, and their insights are fascinating:

  • GS were surprised by the support for government reforms from private companies, even though it caused some short-term pain.
  • Going forward the key is the success of implementation, which will not be fast - momentum and support needs to be maintained
  • Corruption has largely been eliminated at the highest government levels but remains a problem locally - this is work in progress.
  • Big multinationals such as Tata used to invest more outside India than within. This has now changed, which is a huge domestic vote of confidence.
  • Companies agree that the demineralisation and GST (we covered this here) are important structural reforms
  • The size of the population coupled with the size of the tasks in the likes of healthcare and education require low cost digital solutions. The evidence to date is encouraging, though much remains to be done.
  • India spends only 1% of GDP on healthcare, versus 18% in the US.  There is a huge shortage of healthcare staff
  • 150m Indians will enter the workforce over the next 10 years – this will require a completely new, online-focussed, education and training system
  • India has traditionally been a land of small shops. While this will not change soon, what will is the adoption of technology to enable online sales.
  • India today is where China was two decades ago – huge catch up potential
  • GDP growth should be at least 7% per annum going forward
  • It should be the world’s third largest economy by 2027
  • The Indian stock market is now 10th biggest in the world, and should jump to 5th place within 10 years
  • Unemployment is not a problem, but underemployment is.  There is a huge productivity gap between the best and worst companies – similarly on wages.
  • India has 18% of the worlds working population, but just 3% of global GDP.
  • Urbanisation will continue.
  • 67% of Indians live in rural areas (18% in the UK)
  • India has 52 cities with over 1m people, compared to 375 in China
  • 50% of India is employed in the agricultural sector, but produces only 17% of GDP

Political Risk For 2018/9

There always seem to be local elections somewhere in India, and Modi’s BJP party performed well through 2017.  There was a surprising, but still small and isolated, victory for the opposition earlier in March (in two seats in Uttar Pradesh).  This is a timely kick up the backside for BJP, where otherwise there might have been the risk of complacency.

The big test will be in the 2019 with general election, which will effectively be a confidence vote in Mr Modi.  Even if there was a shock defeat for Modi, it is unlikely to upset the longer-term potential.  As Modi continued with reforms started by the prior Government, so will his successors – economic agendas are shared across major parties.  What might change under a new administration is the pace and breadth of the reforms being implemented.

Should investors be worried?  It would be very silly to try and guess the result - there is plenty of global evidence of unexpected election outcomes in recent years.  The demand for reform continuity from voters, whoever is elected, is the key plank for optimism.

We have highlighted on many occasions that India is a country of extraordinary contrasts, simultaneously existing in both the 18th and 21st centuries.  Within this paradox lies the potential.

Coming up: we will look at the choice of Indian funds and how they differ.


  • Don't let short-term noise sway your investing decisions
  • There is value in India over the longer-term...
  • ...but there will be shorter-term volatility



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