Three Reasons to Invest in India Now

Why India, Why Now?

When considering the “why now, why India” question, it's important to highlight three points. First of all, one thing that people just do not know or do not fully understand is that the Indian stock market has delivered exceptional returns over time already. When you think about that, think in U.S. dollars about the same as the S&P 500 over 10 years, and then also in U.S. dollars probably nearly twice the return of the S&P over 20 years. So let that sink in.

Second point. Since Mr. Modi came to power, now almost 10 years ago, where he won on a platform of reform, anti-corruption, pro-business, we can now see the exceptional policy success that's come through. There's tax reform, there's bankruptcy laws, and that he's really promoted financial inclusion. These are game changing and they're now visible in the data.

The third, of course, is that this has run in parallel with swift digitization. This is something we've witnessed in the U.S. Alongside that, the spectacular investment returns in companies that leverage that transformation.

Reform Policy

The closest analog to what's happening in India right now, I think, is post-Reagan United States, which we know led to one of the longest periods of U.S. economic growth. So thinking about Modi's policies specifically, he drastically reduced the cash economy, which together with tax reform has resulted in very sharp increases in tax compliance, and which in turn has brought in much improved fiscal revenue.

So this is public investment focused, and really enabled them to build the much needed infrastructure. Robust bankruptcy laws, what this has done is help rehabilitate the banking system, which was in terrible trouble when he came in, providing more credit availability to the economy as a whole. I think a material component of government digitization has been huge. This is a national payments infrastructure that reduces corruption and gives access to everybody for free. Also implementation of the federal regulatory approval process, which just speeds up efficiency and also to establish the foundation for business opportunity and just the next layer of policy to be put on top of this.

Infrastructure

First of all, let me give you an example of what fiscal improvement looks like. So 2022, tax revenues grew at twice normal GDP. So basically that sets up for a budget for pretty significant increase in public investment and public private partnerships, very focused on productive investment that's driven by returns rather than debt. So obviously this includes transport infrastructure but also a great example is this very ambitious renewable energy target that they have of 500 gigawatts installed by 2030. Now, put that in context of the fact they're already at 158. They're well on the way.

But I think to wrap this, it all serves much more efficient infrastructure as a launch pad for private business investment, innovation, entrepreneurship, and nationwide growth at a new level.

Demographics

I think most people understand that this is the largest country in the world, largest population, 1.4 odd billion people, that's over four times the United States. But I think what's important is how that's built out. We got a median age of 28. We've got 25% of the population aged under 14 years old. This is expanding a younger voter base which strongly favors a growth agenda, so it talks to political stability.

But you also need to think about this through the lens of the baby boomer demographic that drove U.S. growth. This should be very similar. We've got a middle class that's relatively small compared to other developing countries, and that will naturally grow. And I think all of this will just put a multiplier on the reform process that I've already laid out.

Economic Outlook

I think the simplest way to think about this is it creates a flywheel. And that flywheel drives growth in pretty much all areas of the Indian economy, which in turn feeds more growth. The way to think about that is higher employment. That drives higher household incomes. That drives higher consumption. That in turn drives higher private investment growth. So if you think about logistics, better transport infrastructure is a great example, and a more simplified federal tax framework. Inflation will come down. That's a scale deficient logistics. Household food costs should be reduced and this is more disposable income for consumption investment. Lower inflation as we've seen in the U.S. post the 1980s leads to longer period of structurally lower interest rates. And this in turn drives household income growth, increasing consumption healthcare, but it also drives household investments, so home ownership, retirement savings, which really just feeds into the economy.

We're already at forecast 5% to 6% GDP growth through 2030. And that is enough of a framework to have a very positive outlook right now. If we want to put that into context, 15% of global growth this year is coming from India. And given the numbers I talked about, this is only likely to increase going forward.

Valuations

I think there's a sort of raging debate about whether India is cheap or India is expensive. I'm not sure it's as complicated as a lot of people make it out to be. It's a quality growth market. It trades at a median PE over a fairly long period of time in the high teens, low twenties, with a pre-priced book of somewhere in the three handle.

So yes, it's more expensive than other emerging markets. And yes, it's in a similar ballpark to the U.S. But I think these multiples are probably fair. It has been and should continue to be a quality growth story. But I think it's also just really important to understand that this is an index of high quality companies. It's delivered great returns similar to the U.S. If you understand that, it's not that difficult to get comfortable with these ranges, given past performance and understanding of what the future holds, which is reforms, demographics, the public investment tells when we've laid out, it's highly, highly possible to get future returns that could even improve on the past.

So I think I close on this point by saying, look, if you want more reliability, if you want faster speeds, a smoother ride, that's almost certainly going to result in a more expensive vehicle, whether that's an automobile or a stock market.