While we can’t say that investing, as a whole, is more popular than ever before, it’s certainly true that retail investing platforms and services have made investing far more accessible than ever before.
Beyond retail investing, the past two years alone have delivered fascinating developments regarding both investing and fintech, and decidedly gloomy economic conditions worldwide, precipitated in part by pandemic-related slowdown and supply chain woes, have led many investors to look for innovative ways to keep their portfolios healthy.
As a result of this newfound curiosity, certain markets that were previously overlooked are beginning to appeal more and more to US investors.
In particular, India is starting to offer some very appealing investment prospects, and this is precisely what we will be discussing in detail today, along with the expert commentary of Mr. Venkat Pasupuleti.
Pasupuleti is a Managing Director and Co-Portfolio Manager with Dalton Investments LLC in Santa Monica, California, where he manages ~$250 million in equity assets for clients in both North America and Europe.
Dalton offers a dedicated India fund for qualified investors, consisting of India-based equity investments, and it’s one of the top returning funds in the space, with annualized returns of 14% after fees and taxes over the last 8 years.
Pasupuleti is also a regular contributor to Barron’s, a well-known and longstanding investment publication, on topics relating to the Indian market, the Indian economy, and geopolitics.
Pasupuleti is clearly passionate about his work and helping clients achieve their financial goals through investment.
“Helping clients fund their commitments in important areas ranging from scientific research and development to healthcare, education, retirement, and charitable contributions is the most meaningful part of my career.”
Based on experience as well as extensive research, Pasupuleti is highly enthusiastic about the financial potential that India offers, especially when it comes to long-term growth.
If you’re curious about where that enthusiasm comes from or you have a general interest in the investment potential of India, please join us for an in-depth look at the current conditions that may be leading to a major shift.
Investing in India
At the start of the discussion, Pasupuleti reminded us of a few of the crucial factors that have made it more difficult for western investors to bring in substantial returns.
In the years since the financial crisis of 2008, interest rates have remained low and western populations have started to gray. western economies have also been experiencing generally low growth.
Additionally, “Fixed income and checking account returns have been hard to come by given the near-zero interest rates during the last 10 years.”
With all this in mind, India has become a more attractive investment opportunity for investors in the west who are actively looking for risk-adjusted long-term returns.
Why is that? There are several key reasons, as Pasupuleti details here.
“India has been the second-fastest-growing economy behind China for the last two decades, and going forward, it is expected to surpass China to become the fastest-growing economy in the world.”
That’s some very serious growth for a market that hasn’t historically seen a great deal of western interest on the investing front.
There are also plenty of positives when it comes to India’s demographics.
“With a young population, rising working-age population, low per capita income, and a growing middle-income population, India has a long growth runway ahead.”
Pasupuleti also noted that India has a reputation for being a country of entrepreneurs, with numerous high-quality businesses now offering attractive investment opportunities for international investors.
In comparison to the demographics and economic conditions of the west, India offers many signs of future economic growth.
Dalton’s India fund investments were inspired by these factors but are based on extensive knowledge and experience gained from more than fifteen years of investing in the Indian market.
“By focusing on India’s structural growth trends and high-quality businesses run by great entrepreneurs and by adhering to a strict valuation discipline, we strive to deliver attractive investment returns for our clients with a long-term investment horizon. We also believe in investing alongside our clients in the same fund we manage, providing a strong alignment of interest to our clients.”
But what about the elephant in the room here? What about China? Yes, China is still the manufacturing hub of the world, and it remains one of the world’s economic powers, but investors have more than a few reasons to look elsewhere, especially in the long term, and this has only become more true in the wake of the pandemic.
“The outbreak of COVID-19 in early 2020 and the resulting disruptions to global supply chains put a spotlight on the western world’s extreme dependence on China and the need to diversify supply chain risk.”
With China essentially shutting down early on in the pandemic, supply chain norms disappeared, making both manufacturing and shipping far more difficult, and we continue to experience the effects of this supply chain disruption today.
But there are political factors at play here as well, namely the clear, escalating tension between China and the United States.
This has led companies and organizations to look for alternatives and start migrating business interests.
“Many western multinational companies are accelerating their investments in India to build an alternate supply chain and reduce their overdependence on China. India is emerging as a preferred alternate destination as it not only offers a large workforce at a lower wage cost but also offers a large consumer base for companies to sell their products to locally.”
As an example, Pasupuleti mentioned that Apple has been heading in this direction recently, aiming to have 40% of iPhone production handled in India in the medium term. The company has also apparently been urging its supply chain partners to expand into India.
This move seems to be encouraging US and European investors to diversify their portfolios away from what are considered to be high-risk countries, such as Russia and China.
“Prior to 2020, very few investors thought of India as a standalone investment. This just isn’t the case anymore. Investors are now looking to build dedicated India exposures.”
Looking to the long term
To close out, Pasupuleti shared some of the most important investment themes and sectors that he and his team are keeping in mind when it comes to India’s long-term growth potential.
The first is India’s role in growing global digitalization. As Pasupuleti notes, “Indian technology services companies are global leaders in helping companies all over the world adopt the latest technologies.”
As we know, cutting-edge technology is vital well beyond the tech sector, and India has proven to be adept at disseminating this technology.
The next theme is consumer staples and consumer discretionary spending.
“With a low per capita income of $2200, India has low penetration and a long growth runway across consumption categories ranging from staple commodities to discretionary spending.”
Third is manufacturing. As we discussed in an earlier section of this article, many companies around the world, including many based in the United States, are currently looking for suppliers that can serve as alternatives to those in China.
There are already signs of this happening, and though it’s likely to be a slow process, it would represent a major shift to the norms of global manufacturing and the global supply chain.
And finally, financialization. India could easily experience further growth when it comes to financial services.
“With low household debt to GDP and credit penetration, banking and financial services is a significant growth area over the coming decade.”
India certainly isn’t the only market that’s likely to see substantial growth over the next ten to fifteen years, but it’s rapidly establishing itself as being worthy of investors’ attention, and we hope that this discussion has shed some light on the reasons behind this viewpoint.
Special thanks to Venkat Pasupuleti for sharing his expertise on investing and the specifics of the Indian market.