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Key Points
- Foreign direct investment in India is at record levels. >$800B of inflows since 2000.
- The leading private equity brands have been investing in India for decades.
- Top global consumer brands continue to build brand love with Indian consumers.
India’s government has created a stellar environment for investment which should help the Indian economy stay a global leader as more consumers join the middle class. That outlook drives a strong future for Indian consumption & business investment. Here’s one way to play the theme.
Invest in the Countries with Strong Foreign Direct Investment
In this week’s blog, I wanted to talk about emerging markets. Most investment portfolios in the U.S. have very little direct exposure to emerging markets in general, and India in particular. As global investors in iconic b2b and b2c brands, one of the key themes we are excited about, is the expansion of the emerging middle class across the world. As more and more consumers join the middle class and upper-income cohorts, their spending accelerates and becomes more predictable. That has significant implications for investors and the brands that serve them. Let’s talk about India this week. The McKinsey Global Institute estimates that the ranks of the middle class will more than double by 2030 to approximately 600 million people. When you have more discretionary income, you spend more money and consume more goods and services. McKinsey also estimates that manufacturing could contribute one-fifth of incremental GDP in 2030 as more global companies slowly move away from more hostile government regimes like China and embrace pro-business and investment philosophies like those found in India.
India has experienced strong foreign direct investment inflows over the last decade, and it has accelerated over the last few years as digitalization, de-carbonization, and de-globalization has grown more important. India’s Prime Minister, Narendra Modi’s $1 trillion digital economy vision has spurred massive investments in the country. The positive trickle-down effects will be large and wide as the next generation of consumers earns and spends more than their parents. I have written about the importance of tracking demographics before, and India has one of the best demographic situations around the world. That’s one of the reasons why India is the fastest growing major economy in the world. Roughly 2/3 of the population in India is <35 years old and is just beginning their prime earning and spending years. India has a highly skilled tech and IT worker population that’s in great demand from local and foreign companies. That’s why our team added consulting firm, Infosys, to the 2023 Top Global Brands list. There are so many incredible dots that connect once business investment and consumer spending gel together. Large benefits reach across industries like banking, real estate, industrial manufacturing, tech & IT consulting, start-up incubation, logistics and warehouses, cloud migration, healthcare, cell towers and data centers, and consumer product innovations.
Private Equity Partnering with Governments is at the Top of the Funnel.
As investors in themes around the world, we cannot ignore what’s happening with private investments. The leading Private Equity brands have been investing in India’s economic development for decades. They were early investors and are reaping the rewards as the country evolves into a major global powerhouse. What’s happened to supply chains and logistics operations in a post-Covid world has only accelerated the trends. Businesses are digitalizing their operations at a record pace. New supply chains are being built in safer geographies and in countries with more stable governments. China’s loss is India’s and other countries gain. India is fast becoming the office to the world and the factory to the world. As offshoring trends continue, India’s skilled workers will continue to be in high demand. Companies all over the world are attempting to build operations that serve Asia and the rest of the world by building a large presence in India.
Blackstone, the largest private investment firm, recently overtook the Saudi Arabia Sovereign Wealth Fund as the top investor in India. This firm has an uncanny ability to see trends early and it has a history of investing in front of those trends before others. Blackstone began investing in India over 16 years ago and now has investments that total over $50 billion. They have key exposure across fast-growing verticals that include real estate, warehouses, logistics, data centers, and IT consulting. The firm is literally building the backbone necessary for India to thrive in the future. Blackstone has built one of the largest retail platforms, owns 17 Grade A malls, and 16 Grade A logistics and warehouse developments. Because Blackstone saw India’s potential early, it helped introduce the REIT structure in the country which has benefitted many other companies and Indian consumers. Other investment firms like KKR and Brookfield are also very active and helping to build the energy infrastructure through de-carbonization efforts, renewable energy initiatives, and through power grid investments. The efforts of global Private Equity firms have been instrumental in India’s evolution to reach scale as a global partner to companies. The best part is that this process is still in the early innings and India has a lot of growth ahead. This means there’s significant gains ahead for these alternative asset managers.
Young Consumers Offer a Bonanza to Brands.
Investors do not have to speculate on how India’s consumer market will evolve. We have a wonderful comparison in China. The West, and their commitment to China, has single handedly brought hundreds of millions of Chinese citizens out of poverty and into the middle class. Because of massive foreign direct investment many decades ago, China has evolved into a more modern society with robust infrastructure and a strong domestic consumption economy. Chinese consumers have embraced top domestic brands like Alibaba, JD.com, and Pinduoduo as well as top global brands like Starbucks, Nike, Lululemon, LVMH, Hermes, Ferrari, Adidas, Disney, Apple, Estee Lauder, L’Oréal, American Express, and Costco to name a few. Over time, the same will be true in India. The leading brands in the U.S. and Europe are aggressively investing in India and attempting to build brand loyalty with Indian consumers.
Walmart is the majority owner of India’s e-commerce leader, Flipkart with a $16 billion investment. Amazon employs over 100,000 in India across its core e-commerce and retail platform. They have also invested over $6 billion and have pledged to invest over $4 billion across its AWS infrastructure platform. Estee Lauder created a brand incubator to try and discover the next premium cosmetics brand in India. The beauty category ranks highest across Indian consumers. L’Oréal was ranked a top brand by Indian consumers in Kantar’s Leading Brands report 2022. The luxury goods industry is investing enormous sums of money to serve the upper income cohort which is growing rapidly. Perhaps that’s why LVMH stated India is its top priority for business expansion. Capri Holdings subsidiary, Jimmy Choo ranks as a top brand for Indian consumers. Disney Star Media Network reaches over 790 million viewers in India and is the largest TV and entertainment network in India. Starbucks, through a 50/50 JV with local firm Tata Consumer Products is expanding rapidly across India. Google recently made a $1 billion investment in an Indian telecom company. Apple has been operating in India for a decade but has announced its intention to expand its manufacturing across India. Apple has a tiny market share today but that is set to expand rapidly over time. There are powerful growth opportunities in India. The best part about these growth opportunities is that you can take advantage of them by owning the most relevant brands across the business investment and consumer spending industries.
To summarize, let’s connect the dots:
- Investors need exposure to foreign markets through leading companies.
- India is the fastest growing major economy in the world.
- India has a stable government that’s embraced foreign direct investment.
- India’s infrastructure needs to scale up dramatically to support its growth.
- India has over 1.4 billion consumers and they are young, driven, and educated.
- As the build out of India continues, consumers will join the middle class in droves.
- When consumers have more discretionary income, their spending habits evolve.
- India’s consumers have shown they are aspirational owners of global brands.
Disclosure:
This information was produced by Accuvest and the opinions expressed are those of the author as of the date of writing and are subject to change. Any research is based on the author’s proprietary research and analysis of global markets and investing. The information and/or analysis presented have been compiled or arrived at from sources believed to be reliable, however the author does not make any representation as their accuracy or completeness and does not accept liability for any loss arising from the use hereof. Some internally generated information may be considered theoretical in nature and is subject to inherent limitations associated therein. There are no material changes to the conditions, objectives or investment strategies of the model portfolios for the period portrayed. Any sectors or allocations referenced may or may not be represented in portfolios managed by the author, and do not represent all of the securities purchased, sold or recommended for client accounts. The reader should not assume that any investments in sectors and markets identified or described were or will be profitable. Investing entails risks, including possible loss of principal. The use of tools cannot guarantee performance. The charts depicted within this presentation are for illustrative purposes only and are not indicative of future performance. Past performance is no guarantee of future results.
The Chipotle hypothetical cost averaging example highlights the potential power of holding core positions in industry leading brands and being committed to adding to these positions when the market acts irrationally. Cost averaging leading companies can add significant value to your long-term portfolio even if you do not catch the absolute bottom in the stock. Details on this hypothetical are below.
