India is now the most populous country in the world, with close to 1.5 billion people. The average age of the population is just 29, with a significant number of people entering the workforce every year (over 10 million per annum).
This should lead to rising wealth and productivity for India as a nation, which correspondingly will lead to greater consumption and demand for infrastructure and increased create a positive upward productivity spiral.
Due to favourable demographic tailwinds, India is one of the fastest growing major economies in the world, averaging over 6.3% real GDP growth per year over the last two decades, according to the International Monetary Fund. It is currently the 5th largest economy in the world, only behind the US, China, Japan, and Germany and is expected to grab third spot well before 2030.
Given the favourable economic backdrop, it is likely that India’s equity market (now the fourth largest in the world) will continue to be driven by strong corporate earnings for several companies benefitting from India’s favourable demographics. Rapid economic growth has led to a thriving corporate ecosystem, where several successful companies operate today. Corporate earnings are being driven by:
- Economic Growth: India’s economy is growing rapidly, driven by infrastructure demand, manufacturing, and rising consumption.
- Digitisation: Increasing mobile and internet penetration is facilitating growth across various sectors.
- Financialisation: Greater access to banking and credit is expanding economic opportunities.
- Formalisation: A shift towards organized and branded businesses is creating more stable and scalable enterprises.
- Urbanisation: Migration to metropolitan areas is boosting demand for goods and services.
Therefore, a Fund like the India Avenue Equity Fund, which selects companies listed only in India, as part of its investment portfolio, is likely to benefit from the underlying fundamental tailwinds of the region.
This is likely to be broadly superior to investing in other regions, given that the tailwinds for growth are driven by a youthful, aspiring, and innovative society. Whilst in most developed countries the market for each product is likely to be more mature as wealth levels have less dispersion, in emerging economies like India’s, rising wealth will have a profound effect for companies due to a faster rate of increase in demand for their products.
These factors contribute to a thriving corporate ecosystem, where companies can benefit from both local demand and export opportunities due to lower labour costs and industry expertise.
Active management in the selection of which companies to invest in can provide a better long-term experience if the underlying investors have experience in investing in regions like India. This experience should help identify which are the faster growing companies, where valuations are not yet reflective, and the aim being to hold these companies as part of the Fund.
This approach can be particularly effective in a dynamic and rapidly evolving market like India.
