How can we take advantage of India witnessing exponential growth in the emerging world?

India will overtake China as the most populous country in the world this year. According to UN Sustainable Fertility Projections, India’s population will reach 1.6 billion by 2040. At the same time, India’s rate of urbanization remains low, at 35% in 2021, half the rate in China. The World Bank estimates that India’s infrastructure development will require $55 billion annually for the next fifteen years.

In a country with a public debt that already accounts for 85% of GDP JSS Sustainable AM “Recognize that the national financing model is very stable in terms of the statutory liquidity requirement (or reserve requirement) for banks. However, higher government borrowing may crowd out private investment, so India needs more foreign investment to fund its capex needs. FDI in 2022 is about 50 billion. dollars, which was 190 billion from China,” he says. Mali Sivakul, J. Safra Sarasin is an emerging markets economist at Sustainable AM.

Over the years, India has been the world’s second largest producer of smartphones

One of the aspects that experts highlight about the Indian economy is its emphasis on future sectors. India has established itself as a technology powerhouse and there are many multinational companies that offer their services from the region. It is no coincidence that Foxconn, the maker of Apple’s iPhone, has announced that it will open a new plant in India and create more than 100,000 jobs in an effort to diversify its manufacturing away from China. “Apple’s long-term goal is to move 40% to 45% of iPhone assembly to India, compared to the current single-digit percentage, and 25% by 2025,” he says. Jacques – Aurelian Marceau, co-head of equities at Edmond de Rothschild.

Christophe Brown, Chief Investment Officer, Capital Group Due to its proximity to China, skilled workforce and fast-growing, business-oriented economy, India stands to benefit the most from supply chain diversification, he says. “Of course, the economy faces challenges. Investment in infrastructure and regional conflicts, as well as the lack of coordination between local states, have made it difficult for companies like Apple to have a presence in the country,” says Edmond de Rothschild expert.

The industry represents 25% of its economy and the Indian government has proposed to increase its weight in the future, hoping the country can attract more manufacturing. It has lower labor costs than China and an increasingly literate population. “This should boost the growth of the country’s economy and boost other sectors such as banking, energy and telecommunications,” they say at Capital Group.

Important for India, as China has been for years, is the huge potential for domestic demand, he says, “A large local market makes it easier to set up manufacturing centers in the country. That’s why India is a different proposition from other options like Indonesia, Thailand and Vietnam,” he says. Steve Watson, Equity Portfolio Manager at Capital Group.

Despite this, it is a country that is rarely represented in investors’ portfolios. India’s weightage is only 1% in the MSCI ACWI, which includes practically all countries in the world, and the region’s weightage is 9%, even in the emerging markets index MSCI Emerging Markets. This means that investors rarely take advantage of the opportunities in this economy and miss the opportunity to invest in a future superpower.

MSCI India 2022 was one of the few markets to close positively, with a 2.2% advance compared to a -10% decline in MSCI Emerging Markets. The opposite is evaluation in index. MSCI India has a PER of 23.38x, compared to 11.9x for MSCI Emerging Markets.

Technology and banking sectors should participate in the boom in India

Government, whether by design or by default, has been a key enabler of integration. “There seems to be a growing recognition that Indian companies need to be bigger to be globally relevant and competitive. Although the government has not articulated any such policy, its actions speak for themselves,” he says. Murali Srikanai is Equity Portfolio Manager at Wellington Management. As “only two or three state banks will be left”, the expert mentions the merger of the banking sector with the rest.

This should be good news for investors, as “consolidation of hereditary, often family-owned companies into large corporations is increasing the market share, operating leverage and profit margins of publicly traded companies in India. These conditions offer equity investors an opportunity to benefit from positive change in various sectors in one of the world’s fastest growing countries.” We believe in delivering,” agrees the Wellington management expert.

Income growth of the middle class and migration from rural to urban areas gives financial services companies such as banks great potential in a market with still low penetration rates.. Capital Group agrees, “Growth can be seen from all three areas: strong GDP growth prospects, increasing penetration of financial services as a percentage of GDP, and third and most important in a country like India, private sector banks are making a lot of profit. State banks’ market share. So these three growth drivers Pillars are also going to serve you well for years to come.Mastercard and Obopay recently partnered to increase financial inclusion for small farmers and rural communities who struggle to make digital payments due to lack of internet connectivity.The new card that can be used offline will solve this problem.

In Franklin Templeton, “India’s tech industry promises to grow revenue by 16% to $22,000 million in fiscal 2022. In the next four years, the revenue is estimated to increase by 12.5% ​​annually and reach 36,000 million dollars. “India’s technology and outsourcing business was worth $154 billion in 2019, driven by labor costs less than one-tenth that of software developers in the US and Europe. India’s business process outsourcing model leads the world and maintains its competitive edge over its peers in the Philippines, Poland and China. , it moves up the value-added ladder,” he says. Sukumar Raja., Senior Managing Director, Portfolio Management Director Franklin Templeton Emerging Markets Equity Singapore.

We observe that semiconductors and telecommunications network equipment face stiff global competition for foreign direct investment as almost all major economies attempt to build domestic capacity, particularly in semiconductors. With its cost advantages, large domestic market and the use of tariffs to protect new manufacturers in the early stages of development, we believe India can compete with its East Asian peers.