Investing in India: the smart thing to do

Digital platforms and global companies are rushing to get a foot in the door in India, where the 1.4 billion residents have a propensity for online spending. By way of an extreme example, Japan Times spoke to a Mumbai resident who can’t remember the last time he left home to shop; his only offline spending is at bars and restaurants, where he meets friends.

Financial investors are finding new ways to tap into the economic growth that India is seeing as a result of private consumption. According to available data, India’s per capita gross domestic product recrently crossed the $2,000 threshold, despite the risks posed by weak job growth and income inequalities.

There are nearly 700 million smartphone users in India, who are estimated to consume an average of 17 gigabytes in mobile data per month, exceeding North America’s average of 15GB. A contributing factor to that statistic is the fierce competition between telecoms providers in India, resulting in the cheapest mobile data rates in the world.

According to Priyanka Khandelwal, who is fund manager at ICICI Prudential Asset Management, the consumption boost is aspiration-led, and “has the potential to provide a material fillip to discretionary consumption in years to come.” The interconnection that social media provides mean that consumers can see what others in entirely different regions are spending on, and follow suit.

It’s not just new-age Indian tech companies that offer investors a chance to tap into the rise in spending. Traditional firms that are adding digital capabilities have just as much potential for returns. Bain & Co estimated that India’s online shopping market hit $50 billion in 2022. With between 180 million and 190 million online shoppers, India has the third largest market in the world.

Online spending high in India

Exposure opportunities came rolling in when platforms catering to online commerce, like SoftBank-backed logistics firm Delhivery, were listed recently in Indian markets. “Investors can play the online and digital consumption boom in India directly via the tech companies enabling this space, or indirectly via supported industries such as logistics or fintech,” said Kunjal Gala, head of global emerging markets at Federated Hermes.

India’s per capita consumption of food was at $314 in 2020 compared with $884 for China, while for clothing, that figure stood at $53.9 versus $212.9 for China, data from CLSA showed. Per capita spending on health-related items in India was $56.8 in 2020 and $389.3 for China.

According to Vikas Pershad, portfolio manager for Asian equities at M&G Investments, “a pattern will continue to repeat for years in India: industry after industry emerging from a long period of underpenetration” and moving up the per capita consumption scale.

Aspirational spending will increase as Indians’ incomes and wealth rise. Demand will ramp up for packaged food and drink, branded goods, travel, preventative healthcare, and personal care. Already, with private consumption making up 60% of India’s $3.5 trillion GDP, foreign investors are latching on.

It hasn’t been an entirely easy journey: investors chasing the consumption boom have seen shares of new-age tech companies drop since their listings, and are expensive compared with the industry median. Despite this, portfolio investors pumped a net $2.7 billion into India in four key consumption sectors in the 11 months to March, according to data from India’s National Securities Depository. The areas that saw investments were: automotive; consumer durables; consumer services; and fast-moving consumer goods.

As with tech company listings, Indian equities are expensive, both relatively and historically. But for investors who look beyond that, analysts predict the results in the longer term could be spectacular.