We are excited to focus strictly on India, a country that we believe will be one of the best performing markets over the coming years. Already one of the world’s largest economies, it is expected to outpace China in terms of GDP growth in 2015.
India has all the characteristics of a world-class economy. Its people are entrepreneurial and well educated. India is the second largest English speaking nation and the largest democracy in the world.
Figure 1: Income to Urban Population
Figure 1 shows GDP per capita (at purchasing-power parity) compared to the urban population as a percentage of the total country, from 1970 to 2013. It is clear to see that India is relatively poor in terms of per capita income, with average GDP per person of $5,500 in 2013, compared to $11,900 in China. To put things into perspective, the United States has GDP per person of $51,340, with 81% of the population urbanized. We believe that India will close this gap over the next decade. The advantages of a large, English-speaking democracy should allow India to catch up with China and eventually would lead to huge value creation inside numerous Indian businesses.
One of India’s most critical growth drivers is its demographic dividend. Figure 2 shows India’s almost perfect demographic distribution. Roughly half of the 1.25 billion population are under 25 years of age. India has a dependency ratio (ratio of children 0-14 and the elderly 65-100 over people of working age) of 0.55, meaning a large workforce is available to contribute to the country’s growth.
Figure 2: Indian Demographics
These statistics are not new, they have been present for years. Until now, India was not able to fully capitalize on these advantages due to arcane labor laws and bureaucratic red tape. We are hopeful that the landslide victory of the current ruling party under Mr. Narendra Modi, India’s Prime Minister, will achieve the reforms necessary to turbocharge India’s growth. There are signs his promise of cutting red tape is bringing the economy on a more stable footing. Inflation has fallen by half, the current-account deficit has shrunk; the rupee is firm and the stock market has boomed. The IMF predicts that India will be the fastest-growing large economy by 2016, outpacing China.
Figure 3: Sensex return 2014
The Indian stock market has returned over 30% in 2014, and we expect this to continue as India continues to make reforms and international capital flows into the country. While this rising tide will lift most boats, we believe that our experience in investing and firsthand knowledge of Indian business will allow us to find high-quality growth companies not easily available to most international investors.
© 2016 NIIC