In recent years, India has solidified its position as an attractive destination for equity investors. During the pandemic era, we monitored welcome developments on several fronts, including government reforms, infrastructure buildout, and the embracing of an innovative private sector from afar. While a proliferation of economic and corporate data, along with countless online meetings, are effective tools in managing portfolios, there is no substitute for being on the ground and witnessing India’s progress firsthand.

With this in mind, we recently undertook an extended fact-finding trip to the country. The difference between the India of a decade ago and today is night and day, and the energy driving the pace of change is palpable. Infrastructure – from airports and roads to the power grid and telecommunications – has been modernized. Impressively, the runway for infrastructure development is still long as there is much work to be done – something our team learned when attempting to navigate local roads during the onset of the monsoon season.

We are believers that a vibrant and innovative private sector is essential to unleashing the productivity gains that fuel economic growth. After decades of soft statism, the Indian government under Prime Minister Narendra Modi now recognizes the pivotal role the private sector can play in creating a diversified, modern economy and increasing national wealth.

On a visit with the commerce minister, we were struck by the sophistication of the government’s strategy. Its Gati Shakti Master Plan – aiming to turn India into a developed country by 2047 – is comprised of multiple “mini plans,” each with its own well-defined and measurable near-term targets.

If you build it

When traveling through India, one may suspect that the entire country is one expansive construction site. Newly christened highways, rail lines, factories, and residential developments dot the landscape. Integral to the government’s aim of achieving developed market status is increasing the contribution of manufacturing and exports to economic output.

The timing could not be more fortuitous as a reconfiguration of global trade flows has resulted in India becoming a viable destination for advanced manufacturing. Already Apple assembles iPhones in country and Taiwan Semiconductor (TSMC) plans to build a semiconductor foundry. This latter initiative is expected to result in the creation of a local semiconductor supply chain, magnifying the effects of TSMC’s original investment.

A rapidly urbanizing society requires adequate housing, and developers are working feverishly to meet the challenge. We visited Palava City, a residential development that seemingly rose overnight from the plains east of Mumbai. Underpinning the project were the need to house workers from nearby technology hubs coupled with improved transportation infrastructure and the willingness of developers to deploy capital. Of special note was the integration of green space throughout the community – something that stands out to anyone familiar with India’s typically dense cityscapes.

Green space in Palava City

Importantly, infrastructure and industrial projects are expanding to Tier 2 and Tier 3 cities, diffusing the opportunity to rise into the middle class across regions that had previously suffered from underinvestment. And much work remains. We believe the pipeline for electricity generation capacity and residential development will be measured in decades, not years.

Despite improvements, many segments of the transportation network still fall short. What had been a two-hour drive to an industrial site turned into a six-hour return trip as many sections of the highway were incapable of handling the volume of rain delivered by the opening salvo of a historic monsoon season.

The monsoon arrives

Quick commerce: Uniquely Indian

One phenomenon we were eager to explore was the proliferation of quick commerce. For those unfamiliar with the concept, think of it as a turbocharged, near-instantaneous and uniquely Indian take on e-commerce. It did not take long to witness it in action as our hotel’s staff could be seen shuttling delivery bags from scooters to guestrooms at all hours of the day. And with a 15-minute turnaround time the norm, even ice cream deliveries were possible.

Enabling quick commerce is India’s seemingly endless supply of cheap labor. Equipped with just a ubiquitous smartphone and scooter, a reservoir of typically young men wait outside retail stores, restaurants, and dark kitchens – restaurants purposely built for takeout – to fulfill orders in minutes. An array of digital platforms link customers, vendors, and delivery drivers.

In addition to solving pressing questions like “what’s for dinner?”, quick commerce and other gig-economy work also have the potential to make inroads in addressing larger economic and societal needs. The ease of use pulls labor into the formal economy. In this respect, we find the concept inclusionary because it not only provides a steady income for often inexperienced or unskilled workers but also introduces them to a digital ecosystem that could encourage many to seek their own entrepreneurial path.

A complement to quick commerce is India’s novel approach to digital transactions: the Unified Payments Interface (UPI). In short order, participants in the historically underbanked informal economy – all the way down to food cart operators – can now seamlessly execute payments through a smartphone app such as WhatsApp or Google Pay. One cannot understate the degree to which Indians depend upon such apps for an array of personal and business functions – including targeted marketing. An inordinate number of young people are wedded to YouTube, relying upon it for entertainment, news, and learning.

Digital payments accepted

Health care: Expanding scale and scope

A final stop on our trip was a healthcare facility in New Delhi that exemplifies the government’s newfound reliance upon the private sector to improve the quality of life for millions of citizens. The 15-acre location already contained a 770-bed hospital, and at 80% occupancy, plans are underway to develop the remaining two-thirds of the tract. The private health provider’s management team has the confidence to allocate capital to a project of this scale as the market for adequate care remains woefully underpenetrated.

Hospital site visit

The healthcare sector is not only expanding capacity but also improving its quality of service. Entering these new facilities, we felt as if we were visiting a modern hospital in any western capital. They were equipped with world-class labs, imaging technology, and even robotics. One hospital, for example, now can perform 30 liver transplants per month, up from just 10 a few years ago. Such capabilities are all the more important given India’s aging population.

Moving fast

A trip to India never disappoints. While that observation typically applies to the culture, cuisine, and diverse landscapes, it’s now applicable to the country’s rapidly modernizing economy as well.

We view India’s progress as a case study on how substantive reform can empower the private sector to address unmet economic frictions, boost productivity, and expand the fruits of rising national wealth. With this pace of change – along with the overall immersive experience – it will not be a tough sell for us to return to the country, and soon, to gauge further advancements.

The JH Explorer series follows our investment teams across the globe and shares their on-the-ground research at a country and company level.

 

Foreign securities are subject to additional risks including currency fluctuations, political and economic uncertainty, increased volatility, lower liquidity and differing financial and information reporting standards, all of which are magnified in emerging markets.