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India – why we think it offers some of the most exciting investment opportunities in the region

Some of the trends that make us optimistic about the Indian market.

Map-of-india
  • India is the second largest country by population globally after China with 1.38 bn people. 90% of the population is below the age of 59 years old with the average age being 28 years versus China at 38 years.1 This large young population gives it huge domestic market potential and with a regulatory environment that is likely to be comparatively more predictable and transparent makes it an attractive alternative.
  • Currently there are 500-550m smart phone users which is estimated to reach 800-850m by 2025. It has lagged China in access to digital and internet platforms with 600-650m internet users vs 870-900m in China, but this is expected to change and reach 950m -1bn by 2026.2
  • Rising smartphone and internet penetration will be the catalyst to the adoption of e-commerce and digital transactions, transforming the retail, financial and health sectors. Indian fintech’s have raised US$28bn in capital since 2014 for payments, lending, insurtech, wealthtech and Neo-banks (digital diversified financial service platforms). Traditional banks are partnering with these start-ups targeting millennials and SMEs.2
  • Mobile data costs per user are one of the lowest globally and adoption of fintech platforms is one of the highest which bodes well for digital adoption.2 • Strong growth in areas like payments (POS transactions estimated to grow 3-4x by 2025), lending (online-BNPL GMV to grow 14-16x by 2025), insurtech (market to rise 12x by 2025) and wealthtech (market to triple by 2025). However, whilst the growth path is clear, the path to monetisation has been challenging on account of low fees.2
  • The country is attracting foreign capital, for example Facebook announced in 2021 that India would be the first country where they would look to partner and offer small business loans to companies that advertise on their platform.3
  • India has a globally competitive IT consulting industry which is benefitting from the trend in outsourcing but compared to China it is at a nascent stage of development, in terms of internet penetration and digital services. There has been limited choice for investors among listed companies in the e-commerce and internet sector, this is now changing with the successful listings of Zomato and e-commerce cosmetic and beauty provider Nykaa and many more in the pipeline. This is leading to an increasing amount of investment flowing into the Indian tech and internet space through Private Equity and IPOs.
  • Although valuations are high, we see significant potential for growth, and long-term prospects are very attractive, even if in the near term there could be some consolidation.


We have invested in website provider Info Edge, Reliance Industries for their digital platforms and retail business and Apollo Hospitals for their hospital expansion as well as their health tech business. Info Edge has invested in several start-ups and is now benefitting from listing them, notably Zomato and the likely future IPO of Policy Bazaar. As more tech companies list this is likely to reshape the index – some estimates project that tech could be around 10% of the index in 3-5 years.4

Other companies we find interesting are Infosys which is a prime beneficiary of increasing cloud adoption as companies globally update their IT systems which is a multi- year transformation. ICICI Bank has partnered with several SME focussed neo banks and invested in two fintech’s.

Sources:

1 https://www.worldometers.info/world-population/india-population

2 Jefferies University - Indian Fintech, as at 31/01/22

3 https://www.business-standard.com/article/economy-policy/facebook-india-launches-loans-programme-for-small-businesses-in-200-places-121082000579_1.html

4 Source: UBS ‘India Market Strategy "Guidebook for the coming tech IPO wave", Oct 2021

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