Trends Watch: India Equities

First Water

First Water

Industrial growth

EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms.

https://www.eisneramper.com/insights/blogs/financial-services/chulani-tw-ai-blog-0823/

This week, Elana talks with Arun Chulani, Co-Founder, First Water Capital. 

What is your outlook for investing in India equities?   

Given that we are an India-only, long-only public equity fund, I would hope that it’s bright. While I reserve the right to be wrong, it is my belief that it will be India’s Golden Decade with public equities being one of the favored ways of being part of this wealth creation. India is the fastest growing major economy right now, generally growing at 6-8%. It is the fifth largest economy in the world and in a few years will be the third largest after the U.S. and China, moving past Germany and Japan. There are also a lot of long-term further tailwinds that the country is benefiting from. To name a few:

  • Digitization – In 2015, India was 155th in the world in terms of mobile internet access, today it is No. 2 for mobile data consumption with over 600 million smartphones. This is a massive multiplier. Imagine what it means for the ability to pay, educate, and get credit and insurance as well as for the start-up ecosystem.
  • Diversification of supply chains away from China — India is also benefiting from the headwinds that China is facing. The trade wars along with the supply chain issues faced during the pandemic have meant that global firms, such as Apple, are beginning to re-think where they manufacture. To build a world-scale factory, it is preferable to have large domestic demand and then export the rest and India with its 1.3 billion people and growing middle class is a serious contender. China itself is beginning to reduce capacity as well in a number of basic industries.
  • India is also a young population with the average age of 29, so unlike much of the developed world a lot of its population are in the work force.
  • There has been a strong push on infrastructure by the government and this can be seen by the number of airports doubling to 152 since 2014 and even in highway kilometers. Again, this will be a great multiplier not only on the economy but also on employment.                          

Where do you see the greatest opportunities and why? 

Well hopefully given the expected tailwinds as mentioned above, it will be a case of most boats rising with the tide. Some of the sectors that we are veering towards include the chemicals and metals pack, given the China+1 and Minus China theme, as well as infrastructure firms given the Indian government’s strong emphasis on this sector.

What are the greatest challenges you face and why? 

Of course, nothing is linear when it comes to a nation’s development; there will be business cycles and market cycles over the journey. But this volatility also gives you the chance to buy in at decent valuations. Of course, India needs to improve the ease of doing business, by cutting down on the red tape and unnecessary regulation. There needs to be a strong government with a clear and progressive direction that limits policy flip-flops. The economy needs to be inclusive of both the urban and rural economy, with a focus on job creation. These are just some of my thoughts.

What keeps you up at night? 

I am a pretty heavy sleeper. I believe that to be a good investor, one has to be an optimist and keep a moderate view even when there is a lot of negative news out there. Always imagining the worst-case scenario will generally leave you a bystander.

The views expressed are the authors own. Please consult your financial advisor before making any investment decisions.

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