Harnessing the Power of Policy and Economic Transformation to Foster Market Success in India

Amidst a bustling crowd of hundreds, including notable Bollywood celebrities, Tim Cook, the CEO of Apple Inc., exuded visible excitement while inaugurating the first-ever Apple-owned store in India in April.

During a call with analysts following his visit, Tim Cook said India is at a “tipping point.” In the same month, India became the world’s most populous nation, further enhancing the attractiveness of sectors catering to a growing middle-class and youthful consumer base.

This milestone serves as a reminder of the growth opportunities presented by India’s $3.4 trillion stock market, which has regained its position as the world’s fifth-largest. As the South Asian economy claims a larger share in global manufacturing and consumption, traditionally dominated by China, the potential for expansion becomes evident. 

With two-thirds of India’s 1.4 billion working-age population, the market stands out for its “vibrancy” and “dynamism”, as Tim Cook aptly described. This distinguishing factor sets India apart from many other Asian countries facing the challenges of shrinking populations.

With a diverse selection of over 5,000 listed companies, India presents many options for global investors. Various sectors are poised to reap significant benefits in the years ahead, primarily due to India’s demographic composition. Consumption, financial services, infrastructure, digitalisation, and healthcare are among the sectors anticipated to experience substantial growth and opportunities in the coming years.

During an event in Hong Kong, Mark Mobius, the founding partner of Mobius Capital Partners, expressed his enthusiasm for the Indian market, highlighting its immense potential. With a population of 1.4 billion, Mobius emphasised that India offers opportunities in any industry due to its vast domestic market. 

When asked about his preferences in India, the seasoned emerging-markets investor specifically mentioned his interest in infrastructure-related companies, including those involved in building materials, healthcare, and internet-based businesses such as mapping companies.

The escalating tensions between China and Western countries have created favourable conditions for India, as global firms increasingly view it as an alternative destination aiming to diversify their geographic presence. In light of this, Micron Technology Inc. is reportedly nearing an agreement to invest a minimum of $1 billion in establishing a semiconductor packaging factory in India. This development comes after China imposed a ban earlier this year on the use of Micron chips, adding momentum to India’s appeal as a strategic choice for such investments.

India’s promising prospects hinge significantly on the administration of Prime Minister Narendra Modi, expected to secure another term in 2024, and future governments. Their role is crucial in converting the demographic dividend into tangible economic benefits. Effective governance, policies, and reforms will be instrumental in unlocking India’s full potential.

India faces formidable challenges in its journey towards building rapid and robust infrastructure, improving education standards, and generating employment opportunities for the millions entering the job market annually. The presence of pervasive red tape and corruption within the nation further complicates these tasks. 

Lingering issues such as poverty and malnutrition add complexity while widening inequality can escalate social tensions. Additionally, India contends with its own set of geopolitical concerns, with ongoing tensions persisting with neighbouring countries like China and Pakistan.

With a carefully crafted policy mix, the process of economic transformation in India has the potential to generate winners within the stock market. Investors have highlighted several key themes worth considering:

Consumption

According to the Brookings Institution, India, with a median age of 28 compared to China’s 38, is projected to become the largest “young consumer market” globally by 2030. This demographic advantage, coupled with a rapid increase in disposable incomes, is expected to drive substantial demand across various sectors. From automobiles to mobile phones and luxury goods, the surge in purchasing power is set to fuel growth and create opportunities in India’s consumer market.

Stocks that have the potential to benefit from these trends include car manufacturers like Maruti Suzuki India Ltd. and Tata Motors Ltd., as well as jewellery makers such as Titan Co. Additionally, staples producers like Hindustan Unilever Ltd. are expected to remain in focus due to their ability to sell higher-margin products.

Infrastructure

India’s aspiration to become a manufacturing hub is gaining momentum as global companies increasingly perceive geopolitical and regulatory risks associated with investing in China. In line with this trend, officials from Tesla Inc. visited India in May to explore options for local sourcing of components and discuss potential incentives. The company is reportedly considering the establishment of a domestic factory in India, as reported by Bloomberg News.

Companies such as ABB India Ltd., Siemens Ltd., Larsen & Toubro Ltd., and various state-run enterprises are expected to benefit from Prime Minister Modi’s efforts to enhance infrastructure in India.

Financial Services

Investors are optimistic about the financial industry in India, foreseeing promising returns. The growing middle class and expanding workforce are contributing to the increased financialisation of household savings, creating opportunities for the financial sector to thrive.

Top lenders like ICICI Bank Ltd., HDFC Bank Ltd., and State Bank of India are expected to have further growth potential in the Indian financial industry. Shadow lender Bajaj Finance Ltd. and insurers such as Life Insurance Corporation of India and HDFC Life Insurance Co. Ltd. will also continue to attract attention as the industry matures.

Digitalisation

India’s emerging tech firms are engaged in intense competition with their global counterparts. Listing several startups in recent years has allowed overseas investors to be part of India’s digital narrative. However, as the initial excitement of the pandemic-induced tech boom subsided and interest rates rose, companies like Paytm, Zomato Ltd., and Nykaa experienced significant declines in their stock prices from their post-listing highs.

While some of India’s Boomers have reverted to their pre-pandemic habit of offline shopping, the country’s Generation Z (born after 1996) and women over the age of 40 in smaller towns are driving the growth of digital commerce, providing renewed momentum to the industry.

Health Care

India’s elderly population, defined as those above 60 years of age, currently accounts for slightly above 10% of the total population, as per United Nations data. However, this cohort is projected to grow rapidly as life expectancy increases. This demographic shift indicates a significant increase in healthcare demand, as the ageing population will require enhanced medical services and long-term care.

Hospital chain owners, including Apollo Hospitals Enterprise Ltd., Fortis Healthcare Ltd., and HealthCare Global Enterprises Ltd., are expected to benefit from the heightened demand in the healthcare sector. Additionally, pharmaceutical companies like Sun Pharmaceutical Industries Ltd., Cipla Ltd., and Dr. Reddy’s Laboratories Ltd. are considered potential winners in the industry.

For any clarifications/feedback on the topic, please contact the writer at samiksha.swayambhu@clear.in