How government reforms are driving investment opportunities in India

Julian McManus: I did just spend a week in India. It was a really interesting opportunity to revisit the country because the way it’s worked out over the years between COVID and so on, it’s been five years since I last was in India. And it seems that I get to go every five years, which coincidentally is the same as the Indian election cycle. So, I’ve had an opportunity, now, to see India pre-[Narendra] Modi and then post-Modi. And what’s interesting has been being able to chart India’s progress and what the Modi administration has done to really change India in very meaningful ways.

One of the first things that Mr. Modi did was to clean up that corruption, and one of the ways that that was achieved was by redenominating the currency. The other thing that they’ve changed that’s had a real impact is putting infrastructure in place. So, connecting every village with electric power, for example. Building out a network of highways and rail. That’s been a game changer.

They’ve come a long way, and in terms of understanding that journey, it’s been incredibly helpful to interact with policymakers in India. The highlight for me was spending a couple of hours with Piyush Goyal, the minister of commerce [and industry], so, one of the most influential key members of Mr. Modi’s cabinet. But also, I spent an entire day with his team who sit in Delhi, who are charged with putting these infrastructure plans together and then executing against them. And what’s really interesting is that India has a plan to become a developed economy by 2047; it’ll be interesting to see if they hit that date. But the ambition is there, and the energy in the room when you talk to these people is much more akin to what you would find at a start-up in the U.S. than a government bureaucracy.

So, in terms of the way that it plays into our process, it helps to understand at a high level that you’re going to have this backdrop for companies to grow into. You have about 7% or even 8% real GDP [gross domestic product] growth; on top of that, about 4% inflation. So, they’re growing at 11%, 12% nominal. In addition to that, the currency has actually stopped depreciating, and so instead of losing 4% on the currency every year, that’s no longer a drag. So, if you can grow 11%, 12% nominal, that’s a great backdrop for an equity market.

I think from a long-term perspective, India has nudged out China for us. China still remains a large market, and we still find some exciting ideas there. But in terms of the long-term runway, India still has way more growth ahead of it. So, it has the world’s largest population but also one of the world’s youngest. So, the average age being 28 is in stark contrast to the demographics in China. And I think quite likely the capital allocation is going to be better in India than it was in China because it’s going to be a little more capitalistic, a little less state-controlled.

But again, we have to balance that versus valuation, as well. So, India’s done quite well as a market for the last few years and arguably got a little ahead of itself in terms of some valuations. So, we’re being selective and we’re finding some really interesting, well-run discounted banks, for example, in India. Whereas in China, we’re finding different types of opportunities, more idiosyncratic biotech companies, for example, that are just trading at a discount because the market’s been overlooked.