India's economic agenda to spur growth and jobs
India has grown from just another emerging market economy into a US$3.2 trillion economy; the 5th largest in the world. India’s real GDP growth has averaged 6.8 per cent annually since 1992.
Make in India - The Silver Bullet?
The Covid-19 pandemic and US-China tensions have opened a window for India, whereby foreign firms are considering their options beyond China.
Domestic pull and global push factors are serving as a tailwind for foreign direct investment (FDI) , manufacturing base are its large and fast-growing domestic market,, the availability of cheap yet skilled labour and a government that is business friendly.
India’s forex reserves are at a lifetime high of US$ 575.29 billion.
Challenges
India’s GDP will need to grow by 8.0 to 8.5 per cent annually over the next decade.
― Currently India’s investment to GDP is around 30% (~US$865 bn in FY 2020).
The Indian economy is recovering despite the inadequate fiscal stimulus compared to most other large economies.
The Land of Opportunities
A study by the Brookings Institute found that India’s middle class is growing fast and is on its way to becoming the second-largest in the world by 2030.
The ongoing up skilling of the local workforce, and urbanisation are seen as significant contributors to the GDP going forward.
What is our view across asset classes?
Public Equities –
We are bullish on small and mid-cap ideas as many of the companies are yet undervalued and think of it as a good opportunity to be invested.
Drops in sensitive index is temporary, and market cycle provides investors with the opportunity to allocate.
Private Equity –
Given the impetus of Atmanirbhar Bharat; we believe SME’s would need growth capital for expanding and augmenting their businesses to meet the increasing demand.
Currently we are exploring co-investing in series B growth rounds as we believe it provides better risk- return as well as liquidity.
Venture Capital –
We continue looking at opportunities in Pre-series A, Series A funds; as they do offer a very attractive opportunity going forward.
Lastly, due to recent restriction placed on Chinese LPs to invest any fresh capital with India dedicated managers, there exists a wide gap in funding for VC space in India (historically large Chinese groups have been investing heavily into Indian tech start-ups).
Debt/ Credit –
Both of these are stressed and performing credit will be exciting – given traditional banks & NBFCs are going through their own asset quality challenges thus limiting their participation in commercial/ wholesale lending ( Covid led lockdown aggravated it further ).
We perceive private credit as an alternative to growth private equity in India, it provides attractive risk- adjusted returns with shorter duration; amortising structures with current yield and potential equity upside compared to private equity & real estate strategies.