Why India
The Indian economy has witnessed a paradigm shift in GDP growth since liberalisation in the 1990’s. Today it is one of the fastest growing economies in the world and this trend is set to continue over coming decades as the dependency ratio of its youthful and vibrant population dips to a low point.
Demographics
India’s demographics are the fundamental driving tailwind to its GDP growth. The population is now the second largest in the world and is likely to catch China at some point in the next decade. India’s dependency ratio (people below 15 or above 65 divided by people of working age) continues to fall (currently 48%) headed toward levels similar to China (bottomed at 36.5% in 2010). This is likely to lead to sustainably high economic growth (as experienced by China) over the next few decades as India becomes the value-added factory for the rest of the world at a cheaper rate given greater scale economics.
Growth
India has averaged 6.5% GDP per annum since liberalisation of the economy and significant reform was undertaken in 1991. However, the last decade saw a slight pick up in pace to an average of 6.7%, which was only 1% lower than the average for China. From 2014-2017 India surpassed China’s growth and it is likely to do so again in the upcoming decades given the fundamentals tailwinds at play. However, India’s growth engines of Consumption and Services may give way to Manufacturing and Exporting in the current decade, as the incremental growth leader
Low Correlation
India’s economy, demographics and growth makes it an appealing investment region for Australian investors seeking to benefit from its growth story. However, there are also other high growth regions globally which leads us to asking why India. Part of the appeal of the region is the diversity the allocation offers to investment portfolios. Given India’s unique demographics and its need for resources and commodities, it has high diversity to the Australian economy and stock market. Over rolling 3-year periods the Indian and Australian stock markets have a low average correlation of only 0.45. Countries like Brazil, Russia, South Africa and the Middle East, which form a large slice of Emerging Markets portfolio allocations, have a higher correlation to Australia given their commodity influences as exporters.
Ride the Profit Wave
India’s long-term fundamentals lend itself to sustainable profit growth for its well managed corporations who are able to leverage upon a large and growing addressable market, a lower cost base and growing adoption of areas like digital connectivity, financial services, rising infrastructure needs and offshoring and outsourcing. India’s Top 50 companies earnings have grown at 10% annualised over the last 20 years and as an investment region it benefits from diversity and lower dependency on cyclical industries with more volatile profit cycles. In general, Indian firms are able to generate higher ROE’s than their global peers due to these factors. More recently, after a decade of weak profit growth, due to low private investment, an undercapitalised banking system and high cost of capital, it is likely that India’s corporate will achieve higher compounding profit growth in the next decade due to an economic recovery, improving productivity of reforms and a pivot towards growth.
Improving Governance
India’s Corporate Governance has been improving over the last 20 years. This is increasing the interest of foreign investors in investing in India’s capital markets. However, further improvements are required. In 2019 the Kotak Committee’s recommendations will continue to strengthen India’s move from poorly governanced corporations to robust governance and a solid framework. The recommendations focused on the number of independent directors, gender diversity and director skill sets as well as splitting of ownership and management and increasing transparency. Culture, innovation and digital strategy are also to take centre stage in improving governance and transparency.
Source: Motilal Oswal
Being ahead of the curve
Global GDP is approximately US$85tn (according to the World Bank). India’s GDP is about 3% of that, which makes it the world’s 6th largest economy at present. Given its growth trajectory, India should be close to the 3rd largest by the end of 2030. From a market capitalisation perspective, India has averaged 2.4% of global market capitalisation. Over the next decade India’s market capitalisation should rise significantly driven by the rising GDP opportunity, IPO’s (particularly in the technology space) and government privatisation. India’s weight in Global MSCI All Country World Indices is approximately 1%, which translates into most clients having less than 0.5% of their portfolio exposed to what is likely to be the world’s fastest growing major economy of the decade.
India Avenue is a boutique investment management firm providing investment solutions that allow our clients to benefit from India’s remarkable growth story.
OUR BUSINESS
2005
The journey towards the “birth” of India Avenue originated in 2005, when ING Investment Management started a business in India as a separate division, utilising a practiced multi-manager philosophy in markets like Australia, and exported it to India. Three of our founders, Mugunthan Siva, Rajeev Thakkar and Sajjan Raut Desai worked together for INGIM (India), building investment strategies and structures, under this philosophy and applying them to Indian capital markets
2011
In 2011 our founders started discussing the possibility of building an investment firm with a capability to provide a focus on India as an stand-alone investment jurisdiction for foreign investors. The founders identified Australia and New Zealand as nascent markets for investing in regional locations, with the potential to accelerate given education and insights which the firm could provide.
2015
By 2015 the group of founders decided to work full-time on this concept to bring it to life. They did this by leaving their existing employment, thus exercising high conviction in the investment region of India as a long-term structural story for investors in Australia and New Zealand. Thus, the firm India Avenue Investment Management was registered and came to life in 2015 in Sydney, Australia.
2016
After building our business for a period of 12 months, our first fund, The India Avenue Equity Fund was launched on 6th September 2016, with strong service provider partners like Equity Trustees (RE), Mainstream (Fund Administrator), KPMG (Fund Auditor) and BNP India (Custodian).
NOW
India Avenue is now a boutique investment business firm, with clients spread across family offices, high net worth individuals, wealth advisers and financial planning firms. Our firm has focused on education and knowledge as a driver of investment behaviour and have taken a long-term approach towards Australian and New Zealand investors contemplating an allocation to India’s growth as part of their portfolios. Our firm has assets in excess of A$50m and the India Avenue Equity Fund is rated “Recommended”* by Lonsec and is available on multiple investment platforms across Australia and New Zealand.