Incredible India!
Jim Rogers (1) wrote it: there is no better way of finding attractive investment opportunities than discovering the world as it is, kilometre by kilometre!
This is easy to say, but for a French investor, wandering through the narrow streets of the Dharavi shantytown in Mumbai is a particularly alarming experience. How can we reconcile the discovery of India’s most disadvantaged district and our daily benchmarks in the financial markets.
Dharavi, with a million inhabitants and immortalised in Danny Boyle’s film Slumdog Millionaire, is nevertheless an excellent expression of today’s emerging world with a young population full of hope of finding a better life. Achieving this involves a huge appetite to consume in a western way. For example, we can only be surprised in Mumbai and throughout India by the momentum and success of US home delivery pizza chain, DOMINO’S PIZZA, which already has more than 500 sales points in more than 100 cities, and is targeting more than 1,000 in the near future. India, known for its conservativeness and sharp sense of tradition, particularly culinary, has discovered a passion for this icon of Italian cooking: ultimately, only one small step lies between naan bread (2) and pizza!
The rural world is another essential engine behind the future development of India. Long neglected due to the major reforms of economic opening, until recently, the Indian countryside experienced a degree of deterioration compared with major cities (GDP from rural states fell from 65% of GDP of developed states in 1991 to 54% in 2011(3)). Since 2008, and in response to the global crisis, the Indian government has decided to focus on the two-thirds of the Indian population that only possesses one-third of the wealth via a plethora of subsidies. For the first time in 2012, rural India grew at a faster pace than Indian cities. Among the main beneficiaries of this development, we would mention HINDUSTAN UNILEVER, the local subsidiary of the Dutch agri-food major, UNILEVER, which is the most widely established in the countryside, and MARUTI-SUZUKI, the country’s leading car brand, which has three times more dealers than its nearest rival (HYUNDAI) in the Indian provinces.
Today, despite all of its potential, India is witnessing an unprecedented economic slowdown, with the lowest GDP growth rate (4%) for 10 years. Unbridled inflation (11.2%), high growth in deficits (5.2% of GDP), a weaker rupee (-32.5% over five years), the halt to infrastructure projects and repeated scandals, have all undermined the attractive Indian story.
However, after spending time locally, visiting the country and meeting its companies, we are convinced by its long-term development potential. While India is lagging China by almost 10 years, it is clearly capable of filling this gap: in 2025, the Indian population is set to be larger than that of China and above all, Indian people are 20 years younger than Chinese people.
As Jim Rogers wrote, “India is a land of contradictions. The country provides some of the most brilliant minds in the world (…). But almost 50% of its population is illiterate”.
Numerous investment opportunities spring from this irrationality that we went to meet. We have not hesitated in investing capital in companies such as JUBILANT FOODWORKS (the DOMINO’S PIZZA franchise in India) and HAVELL’S (the Indian LEGRAND) which are surfing on the wave of developing middle classes in emerging markets, an investment theme favoured in our new fund Echiquier Global Emergents (4)!
Didier Le Menestrel
with the king help of Armand de COUSSERGUES
1 Jim Rogers, The adventurous investor – Edition Valor
2 A traditional flat bread made from wheat flour
3 Source CLSA
4 Read the latest news about your fund on the blog: www.echiquierglobal.com