What’s Shaping India? Five Emerging Trends

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• On: 07/24/2023 08:29:46
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This is an excerpt from NCPERS Summer 2023 issue of PERSist, originally published July 18, 2023.
 
While COVID-19 impacted near-term developments in India, key sectors are standing out, offering compelling investment opportunities. Here are five emerging trends to watch.
 
Expanding Digital Infrastructure with the India Stack
 
Over the past decade, the Indian government has pushed the creation of the “India Stack,” a series of free public digital goods that enable a digital economy for those who have historically been outside the formal economy. The net impact of the India Stack is that street vendors are now more likely to be inside the formal economy, accepting digital payments for goods, and can now use those sales as a verification of income for credit access. The expansion of digital infrastructure, combined with the pandemic (which increased remote work globally), also led to more outsourcing to India. India essentially became the office of the world as corporations became more comfortable with work being performed outside of the office.
 
From Biscuits and Toothbrushes to Luxury Goods: A Tale of Two Indias
 
While overall income levels in India have risen, there is still a large disparity between the highest earners and the average Indian. By income, the top 10% of Indian people earn more than 50% of the country's total GDP. Much of the population is still low-income by global standards, and most incremental consumption goes toward products lower on the pyramid. We see fewer opportunities in branded sneakers and more opportunities in basic consumables. That's why our biggest overweights in India's consumer sector are consumer staples companies.
 
Is Solar the Future?
 
India is a sun-rich country, and as solar energy continues to become more competitive, it can help reduce India's need to import oil and natural gas. Beneficiaries of India's renewable power investment range from large Indian businesses using their scale to expand into domestic polysilicon mining, solar panel manufacturing, and energy storage to a global leader in industrial automation geared toward electrification products such as solar inverters and switching.
 
Modernizing India's Urban Infrastructure
 
India is investing heavily to modernize and expand its infrastructure. My colleagues on our industrials team believe these investments, along with other schemes by the government (such as production-linked incentives), will go a long way in driving private capital investment and economic growth and supporting manufacturing growth. Structural steel tubing manufacturers, as well as an explosives manufacturer used in the extraction of minerals and India's leading manufacturer of cables and wiring, could potentially benefit from urban infrastructure investments.
 
Growth Opportunities in Rural Areas
 
As in urban areas, rural infrastructure in India continues to be a challenge. But my industrials team colleagues also believe this presents an opportunity for companies that can address India's infrastructure challenges. The growth rate in industries, ranging from waterproofing adhesives and coatings to piping and concrete, continues to be greater than India's gross domestic product (GDP). In addition, rural farming remains a primary source of income in India and improving agricultural efficiency is another strong growth trend. Investable examples include innovative agricultural chemical manufacturers and distributors.
 
The Case for India
 
As bottom-up asset managers, we are excited about India's economic potential and remain focused on seeking out quality companies that create sustainable value.
 
This article is excerpted from our blog, which you can read in full here.

About the Author: Jeremy Murden, CAIA, is a portfolio specialist for William Blair's global equity strategies. In this role, Jeremy conducts portfolio analysis, participates in the team's decision-making meetings, and communicates portfolio structure and outlook to clients, consultants, and prospects. Before joining William Blair as a portfolio specialist, Jeremy was a portfolio strategist at Matthews Asia, where he provided macro thought leadership and individual portfolio insights focused on the firm's China and Asia equity strategies. Before joining Matthews Asia, Jeremy spent 10 years as a senior investment manager analyst for William Blair Select, leading external equity manager coverage for the team that was responsible for the selection and ongoing evaluation of third-party investment managers. He started his career in distribution as a product specialist at Claymore Securities, now Guggenheim Funds. Jeremy received a B.Sc. in finance honors from DePaul University and an M.B.A. from the University of Chicago Booth School of Business.