Big-picture forces make India ‘fertile ground’

A portfolio manager identifies economic and demographic trends that make India a compelling opportunity

Big-picture forces make India ‘fertile ground’
Financial market advice is usually focused on short-term factors that cause investors to flock or flee, but it often pays to take heed of more macro trends. That’s particularly true for India, an emerging market that one investment professional has called “fertile ground.”

Greg Placidi, senior portfolio manager at Excel Investment Counsel, is optimistic due to “unstoppable forces” that are driving the country’s growth, according to the Financial Post.

One factor he emphasised is the considerable growth of middle-class consumption in emerging markets. While they accounted for only 20% of the US$20 trillion in spending observed in 2010, they’re projected to increase their share to 65% in the next 15 years or so. Middle-class consumption spending around the world is seen to hit US$51 trillion by 2030.

Another supportive variable is the migration of emerging-market populations from rural areas to cities, with McKinsey & Co. expecting mid-sized EM cities to account for 40% of global growth by 2025. “The huge populations in these countries means that they can look internally for domestic growth, and don’t have to worry as much about developed nations,” Placidi told the Post, noting that developed nations went through the same change post-World War II.

While the same themes could be observed in China, Placidi said India’s demographic outlook makes it much more attractive. “India in some ways, 15 to 20 years behind China where it comes to the emergence of the middle class,” he said.

According to Placidi, India’s GDP is projected to grow by 7.5% next year, while China may struggle to reach 6%. The gap is expected to get wider over the next decade. “India is by far the more fertile ground,” he said. “There is much more opportunity in India, especially for multinationals, than there is in China.”

He pinpointed one such opportunity in automobiles, which he noted have a low penetration rate in the country. Statistics from the OICA revealed that only 22 out of every 1,000 people in India owned cars as of 2014, compared to 640 per 1,000 for Canada. In 2016, 3.8 million cars were sold in India; in Canada, only 2 million were sold.

“Disposable income is a lot higher here in Canada, but as it grows with GDP in India, we are going to see stronger penetration of automobiles,” Placidi said.

Placidi also highlighted a strong possibility for Apple to make a stronger push into the Indian market. According to data from Counterpoint Research, 2016 iPhone sales in the country reached approximately 2.5 million units, but that gave the tech company only around 2% of the overall market, putting it in tenth place.

“There is no way Apple is going to be happy with a 10th place ranking over the next three or four years,” Placidi said, noting forecasts that projected cell phone sales in India to hit 750 million by 2020.

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