Perspectives
15 March 2024
For investors eyeing the future, India has long held the promise of a young, aspirational population, backed by robust democratic and business frameworks. Following a decade of reform, rising international influence and macroeconomic growth, institutional investors are now turning their gaze to the dawn of ‘India’s decade’.
Sceptics may say India has seen numerous economic ‘new dawns’ before. Yet take a close look, and the nation’s future prospects start to look as exciting as India’s recent moon-landing might suggest1 – a sentiment supported by its world-leading IPO market,2 and increasing numbers of global companies looking to expand there.3
Many fund managers that have never been to India, are now making the trip here to better understand it.”
Abhishek Poddar
India Country Head, Macquarie Group
Managing Director, Real Assets, Macquarie Asset Management
Economic and demographic fundamentals are strong. India’s projected real GDP in 2023 sits at 6.3 per cent, with growth fuelled by domestic consumption and investments.4 S&P Global Ratings anticipates India will remain the fastest-growing major economy for the next three years,5 and by 2030 will be the world’s third-largest economy.6 Yet as a measure of its untapped growth potential, India’s GDP per head (at purchasing power) still sits at just 40 per cent of China’s current level.7
The nation’s demographic profile is favourable too. At 28 years old, the Indian population’s median age is a decade less than in the US, while its share of working age population sits at 67 per cent, higher than China or Brazil.8 Disposable incomes have risen by 15 per cent.9
According to Sandeep Bhatia, Macquarie’s Managing Director, Head of Equities India, this demographic edge and burgeoning personal wealth will prove a winning formula for the next 15 years. “India is an open and democratic country, which will soon have the world’s largest working-age population. This is expected to bring highly lucrative growth for the next 30-35 years or so,” he says.
Supported by India’s total investment levels of 30.6 per cent of nominal GDP10 and a gross national savings level of 30.2 per cent,11 together with strengths such as stability, abundant entrepreneurship and skilled labour, many are rightly excited by where India’s youthful economy could be by 2050.12
Supporting the notion that India’s decade is nearing are a combination of geopolitical shifts, technological leaps, and ambitious reform.13 Bhatia agrees that India’s current geopolitical strengths and strong fundamentals position it well to enjoy a spell of transformative growth.
With an ongoing need for expanded physical infrastructure, he sees a powerful scalable opportunity ahead for institutional investors with an eye for discipline, patience and intrinsic value: “India is building good infrastructure,” he asserts. “And it will take us at least two decades of building to meet the growing capacity needs here.”
For those closely familiar with India’s investment landscape, the current wave of excitement requires many to upgrade their previously held expectations. “In my two decades of professional experience, I've never seen the level of interest in India amongst the global institutional investors as high as it is currently,” observes Abhishek Poddar, India Country Lead, Macquarie Group and Managing Director, Real Assets, Macquarie Asset Management.
“We're seeing lots of interest across a variety of investors,” he notes. “Many fund managers that have never been to India are now making the trip here to better understand it,” he says. Poddar believes the days when India’s viability as an investment destination were questioned are over. “India is now standing in a good position to attract foreign capital,” he says.
A case in point lies in renewables. India’s stated goal is to pursue net zero emissions by 2070,14 yet it remains reliant on coal for 70 per cent of its electricity output.15 Annual CO2 emissions stand at 2.44 billion tonnes per year, the world’s third-highest behind China and the US.16 As an interim target, the government aims to extract 90 per cent of its energy from renewable sources by 2047 – the year India marks 100 years of independence.17
For Poddar and team, the exciting aspect of today’s snapshot is that India’s clean energy market is already a viable commercial proposition, with support at the highest level. As of July 2023, India’s renewable energy sources, including large hydropower, have a combined installed capacity of 176.49 GW.18 The country’s solar and wind technologies are already large-scale and commercially proven investment opportunities, he asserts. “The government is aiming for 1,000 GW of capacity,” notes Poddar. “That’s a significant amount of headroom, and there’s a proven business model,” he adds.
The country is likewise promoting a theme of self-sufficiency, particularly around local production of battery technology.19 As trends around decoupling or de-globalisation are observed globally,20 Poddar sees wisdom in this flex, with current examples lying in focus on promoting local eco-system in electric vehicles, green hydrogen and offshore wind.21 Likewise, given India's abundant natural water flows,22 pumped hydro-storage as an alternative to batteries, is also an interesting area of exploration, he notes.23
India is one of the largest consumers of data globally (on a per capita basis)25
In 4 years, India’s mobile users will boost data consumption 300 per cent26
India is witnessing a rapid digital transformation, as legacy sectors such as healthcare, welfare, logistics and e-commerce race to meet the needs of India’s rapidly urbanising population.24 Already one of the largest consumers of data in the world on a per capita basis today,25 India’s data usage will grow by 300 per cent over the next four years.26
“Supporting this level of consumption requires robust digital infrastructure in the backend,” says Maheep Jain, Managing Director, India Head of Infrastructure and Energy Capital in Macquarie Capital. He says India has long relied on foreign direct investment (FDI) in the digital infrastructure market, a sector which allows for 100 per cent foreign ownership.
With increasing penetration of data intensive applications, the next step is about gaining speed, by boosting small-cell connectivity and improved fibre infrastructure.
“These are the type of investments we are bullish about,” says Jain. In May 2023, Macquarie Capital acquired a majority stake in CloudExtel, a leading Network as a Service (NaaS) provider in India.27
The road network will change, offering a much better experience to users and the opportunity to use an international quality road.”
Deep Gupta
Managing Director, Co-Head of South East Asia and India
Macquarie Asset Management
From digital highways to physical ones, much of private capital’s role in India’s rapid road development story lies in helping inject capital into areas that can effect rapid change. Macquarie was one of the first private investors into India’s roads,28 pioneering the purchase of local concessions with private ownership allowing the country to boost India’s vital transportation system.
Deep Gupta, Managing Director, Co-Head of South East Asia and India in Macquarie Asset Management believes that the next chapter for India’s roads lies in developing a purpose-built expressway network: “In the next 10 years, you’ll see a number being built,” he predicts. “The road network will change, offering a much better experience to users and the opportunity to use an international quality road.”
Gupta believes the country’s new push to rapidly introduce electric mobility29 can prove equally transformative, allowing institutional investors to help India embrace lower emissions, while lowering dependence on imported oil. In addition to the environmental benefits, if the local market can produce its own viable locally made EVs and scale them successfully, it will help many more Indians to afford their first car.
You have to have expertise, resilience, patience – and the ability to ride through the volatility.”
Abhishek Poddar
India Country Head, Macquarie Group
Managing Director, Real Assets, Macquarie Asset Management
While its opportunities are abundant, India can still be ‘extremely complicated’ for the uninitiated, warns Poddar, which is where investing in the right local partnerships, teams and knowledge, become critical. “You can very easily lose sight and follow growth that’s not commercially viable,” he warns. “You have to have expertise, resilience, patience – and the ability to ride through the volatility.”
Where India’s vast opportunities around renewables, digital infrastructure and transportation align with sound purpose-driven investment principles, Podder believes that for Macquarie and its partners, the next decade will be a transformational one. “We've been clear on where we want to participate and how – and where we won’t go,” he asserts. “Because aside from the risks, there’s opportunity to make a positive impact on India’s future.”
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