India's inflection point

In late March this year, I braved it to India. That foray was premature, and I wound up spending my time in Mumbai stuck in weekend lockdown, before beating a hasty retreat. This was just as the second wave began to rock Indians out of their confidence (some would submit hubris) that they had defeated Covid-19. Indian exceptionalism and triumphalism were soon replaced by a palpable sense of disbelief and outrage. As this virus has taught us, again and again, it has its own rhythms – high and low tides. When all is said and done, governments can do little to cope with a deluge which comes with such ferocity. The international and Indian media keenly followed India’s Covid tragedy. What is skilfully and deceitfully hidden in China, is in plain sight and augmented in India. The price of democracy. The tsunami that overwhelmed Indonesia was as vicious, yet scantly covered. Asia demonstrated that there is, sadly, little that countries can do in order to deal with massive spikes in infections.

After a 10-day long yatra – visiting seven cities (Mumbai, Pune, Bangalore, Hyderabad, Coimbatore, Chennai and New Delhi), one is struck by the resilience of Indians. The people of Bharat have bounced back, licked their wounds and mourned their losses of family, friends and colleagues. The remarkable comeback from this difficult chapter is best reflected by the Indian vaccination drive. After a faulty start, 850 million Indians have had their first dose. 200 million are double vaccinated. These are staggering numbers. Every single Uber I used in each of these 7 cities was driven by a vaccinated driver.

Never write off the Desis!

No less important, Indians are mindful of a third wave and are less likely to drop their guard. And like in many countries, Indians feel that they are moving from Covid being a pandemic to being endemic. With high infections and vaccinations, India is now well placed to live with the virus. This has major ramifications for the economic recovery. It fuels a widely held confidence that India has begun a protracted spell of economic growth. The economic revival is however, proverbially, a tale of two cities.

Large companies - especially in IT, rural/agriculture, pharma, speciality chemicals and manufacturing - are doing very well. Not least those companies which de-levered before Covid. The Indian stock market is certainly cheering them on to dizzying new heights. To boot, the China plus one is palpable for exporters. Indian exporters are inundated with enquiries and orders. God bless president Xi Jinping for all he is doing for India.

The tech scene is rocking!?Sitting in Bangalore’s Third Wave Coffee stylish shops, you can feel the buzz. It is raining Unicorns and exits. No less important, there is a wave of product companies emerging. Freshworks, which just listed in the USA, is just the first salvo and the proverbial tip of the iceberg. India is no longer a labour arbitrage for IT services.

And no less important for coffee lovers, the Indian coffee scene has become a handy metaphor for the tech scene. Indian farmers make some of the finest coffees in the world. It was exported. Now, that coffee is being roasted and served locally. I had a world class cortado in Bangalore. 11 years ago, that seemed a flight of fantasy. India for so long an exporter of the finest human capital, is now seeing its abundant natural resource – its smart people – excel locally, building world class global SaaS products and fintech solutions. It seems that good tech is the precursor to great coffee. ??

Sadly, the other side of the coin is the informal sector and small and medium enterprises (SMEs), which were badly impacted by Covid. They were struggling before the pandemic, now they are even worse off. Like in many economies, the big got bigger and the small got smaller and weaker. Reviving that segment in India is a challenge.

Finally, a few words on the stock market. The Sensex has catapulted from a precipitous fall in March 2020 to an all time high this week. Some fund managers are stymied by its rise and point to similar dynamics elsewhere in the world. They presume a pause (small correction), but feel that will only serve as a rest before scaling new heights. Dalal street feels that the India market is poised for a great run. China’s unrelenting regulatory shifts (tantrums) and the economic purge of the tech elites are viewed as a major catalyst for flows into India. After all, India alone in emerging markets can absorb the capital that would go to China. Moreover, this dynamic will see India evolve from being a tactical to a strategic allocation for many international investors. To reiterate, Xi Jinping is doing incredible work for India. Yet, unlike the recent market rally, which was pretty much a straight line – greater volatility is expected. I hope that in writing these words I am not jinxing the market. And whereas the post-March 2020 rally was wide, the sense is that going forward this will increasingly be stock pickers market.

Driving to Pune from Mumbai during Monsoon is always lovely. The greenery and the waterfalls are mesmerising. The lane discipline of the drivers less so. As we approached Lonavala, I was struck by an apt road sign, which wisely warned drivers as follows – in rainy season go slow. Wise words for drivers and sage guidance for investors.

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