Theresa May’s visit to India is her first trade mission as Prime Minister and an important one for the UK as it looks beyond Europe. India is currently one the fastest growing major economies and this is forecast to continue in 2017 and 2018. The investor friendly policies of the Indian Government led by Prime Minister Narendra Modi are designed to leverage this growth and the high priority visit of Mrs May will include a review of the India-UK Strategic Partnership designed to foster greater economic and commercial relations.
A number of small and medium size businesses are said to be accompanying Mrs May on the trip and doubtless they will be eager to tap into India’s impressive growth story. There are two key points here worth noting which illustrate perfectly the fundamentals and the opportunity at play.
Firstly, in 2007 India’s GDP crossed $1 trillion. However, in only a further 8 years GDP doubled to $2 trillion in 2015. India’s GDP is now forecast to more than double to $5 trillion by 2025 with the growth rate hovering around 8% for the next couple of years. Crucially, this economic growth is underpinned by long-term democratic ideals and a stable government intent on delivering stimulating reforms such as The Goods and Services Tax Bill which we believe will add an additional 1%-2% to GDP once its impact is felt.
Secondly, India enjoys advantageous demographics with 65% of the country’s 1.3 billion people under the age of 35. This vast working population is getting increasingly wealthy, in turn driving a middle income consumer growth story. India’s private consumption expenditure is expected to grow from $1 trillion in 2015 to around $1.8 trillion by 2025.
The commercial and trade opportunities are clear. But what about UK investors keen to access this growth story? What should they look out for? It is worth noting that India is the only major emerging market driven by domestic consumption. So unlike its BRIC counterparts which rely on exports, India is protected from global shocks.
India’s interest rates, which are currently relatively high given the stable inflation scenario, are inversely correlated to the US and are trending downwards. Reserve Bank of India has underlined its commitment to this dovish stance however, if this were to reverse investors would need to take note.
Despite the risks, and there are always risks when investing, we believe the consumer growth story remains convincing. Finding the right stocks at an individual level has its challenges but more broadly there are clear sectors from which the winners will emerge. The MSCI India 10/40 index has 16.23% weighting to IT, 14.95% in consumer discretionary and 10.48% allocated to healthcare, all of which will benefit as the spending power of the burgeoning middle class increases.
Mrs May will not want to miss out on the opportunity to boost trade relations with India. I believe investors should not ignore this unique opportunity to access a once in a lifetime consumer growth story.
