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India's economic boom · UBS Trending

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  India's economy grew more than 8% over the last year.
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  This makes it the fastest growing major economy in the
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  world, even after a rougher than expected election.
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  So where did this growth come from?
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  Investors are asking questions like is this sustainable?
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  And what does the investment window for India look like?
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  We're going to break it all down for you right
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  here on UBS Trending.
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  Hi, everyone, and welcome to UBS Trending.
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  I'm Anthony Pastore.
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  Thank you for being with us.
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  My guest today is Yoojeong Oh.
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  She is an investment director on the Asian equities team
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  at Aberdeen.
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  Yu Jung, nice to have you join me on the
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  program.
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  Great to see you.
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  Thank you very much.
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  Hello.
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  So you, John, you know, the, the story from from
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  India, it's, it's been a really interesting one and it's
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  been fascinating to watch the country grow and change over
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  the past several years.
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  So just from a very macro perspective, what do you
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  see as the forces behind these changes that are happening
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  there?
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  Yeah, you're right.
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  And I think investing in any emerging market is really
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  always a balancing act between that promise of growth and
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  the known unknowns of the volatilities of that emerging markets.
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  And I think India, as you say, has really been
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  a great market for the past couple of years.
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  And that's really largely thanks to three drivers in our
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  opinion.
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  Firstly, really that rapid growth of the middle class consumer
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  in India.
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  So not only has India overtaken China to have the
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  largest population in the world, but the dollar value of
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  consumption spending is also increasing and India's forecast to become
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  the third largest consumer globally and before the end of
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  this decade, third only to the US and China.
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  I think secondly, there's been very supportive government policies as
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  well that's really ushered in an era of capital and
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  infrastructure investment.
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  And that's really helped the Indian economy to really benefit
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  at the moment from several years of painful reforms that
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  it's had to go through.
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  And it's also benefiting from that global offshoring trend that
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  has come at the same time as well.
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  And I think lastly, India has been a great investor
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  in digitalization and that energy transition story as well.
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  So India's digital stack has created this single open software
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  platform for India, consumers and businesses.
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  And again, I think that sets a great sort of
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  scene for companies to really try and build their businesses
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  out into the future.
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  Yeah.
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  And, and if you look at the, let's kind of
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  take it now from the ground up and looking at
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  the citizens who are living in India, clearly we, as
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  you said, the government has truly invested in technology infrastructure,
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  you know, all the things that on paper add to
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  a better standard of living.
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  So has have the citizens really seen that?
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  Is that something that you can see on the ground?
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  Yeah.
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  So I think if we stick with this digital stack
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  as an example, then that was a government LED initiative
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  to create this digital sort of open platform to support
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  India's future needs.
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  I mean, I think that was a very good forward
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  thinking initiative that India put in place.
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  It started with Adha, which was their national digital identification
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  process, which has been rolled out to over a billion
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  people in the space of just two or three years.
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  Whereas if you look at some of the more developed
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  countries in the world, we're still struggling to get our
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  E passports rolled out to our full populations which are
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  nowhere near as big as the size of Indias population.
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  But having that digital ID system has really helped them
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  to allow processing of online payments to help with digital
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  banking, improves data availability.
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  And going forwards, they're going to build on that with
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  health services as well.
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  So in a couple of years time, a patient in
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  India can have their medical records transfer with them to
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  any hospital they go to in India, once their hospital
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  records are linked to their ad hoc ID as well.
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  So I think all of these things are really helping
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  Indian citizens to benefit from that digitalization trend as well.
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  I also think if you travel to India simply as
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  a tourist as well, but obviously this affects the citizens
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  on the ground as well.
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  But infrastructure that's been such a big change in India
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  over the past decade.
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  Me, like if I think about the last time I
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  went to the Taj Mahal, that journey was a six
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  hour journey on on on on this road that was
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  full of cars and and animal traffic as well.
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  But I went earlier this year and it's become a
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  super sort of six lane highway that allowed me to
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  get to the Taj Mahal in just under three hours.
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  So I think all the support and, and, and the
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  planning to get that that sort of infrastructure in place
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  is again, helping Indian citizens to go about their daily
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  needs better as well.
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  The day I visited Taj Mahal actually earlier in the
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  year was the opening of the new metro station at
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  the Taj as well.
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  So I think that continued investment into allowing ease of
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  mobility is really going to benefit the citizens too.
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  Yeah.
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  And, you know, and from somebody who sits all the
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  way here in New York, on the other side of
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  the planet, it feels like everything was happening almost overnight.
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  You know, one day it was, as you said, six
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  hours to go anywhere and the next there are metro
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  stations and all these modern ways of being transported around
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  a very large country.
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  But on the on the on the spending side, did
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  the government use a lot of leverage when they were
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  investing in the economy?
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  Where did the where did the funding come from?
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  Yes.
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  And actually India has relatively low debt to GP, debt
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  to GDP.
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  And I think keeping credit costs low is again very
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  important to this government as well.
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  And actually that's something that will link into some of
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  the service offerings that the digital stack can provide in
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  future to at with such a growth economy.
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  I think funding for some of these infrastructure projects has
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  come from private investors.
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  The private equity market in India is still very active
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  as well and I think that provides good funding source
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  for the economy.
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  So India has hasn't had to over leverage itself as
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  some of its other emerging market peers have done in
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  the past.
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  I also think there's a very strong banking sector within
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  India and that's also helping to fund businesses much more
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  at the grassroots level.
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  So perhaps not for the large infrastructure projects that tend
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  to attract a lot of foreign investors.
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  But if you're an Indian business, and I think there's
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  a lot of new creative businesses coming up in India
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  to serve a new demand as well, then then these
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  companies are benefiting from that strength of the financial system
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  in India as well.
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  Great.
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  Thank you.
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  You junk.
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  So interesting.
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  You know when we talk about India, our chief investment
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  office here, our emerging markets team does actually think that
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  it's likely the country is likely to remain well supported
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  because of that resilient macroeconomic backdrop.
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  And they also expect further upside in Indian equities and
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  bonds through the through the rest of the year.
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  But in your opinion, when you look at the bigger
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  picture, has the investment opportunity played itself out or are
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  there more opportunities ahead?
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  Yeah.
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  So I think it's a bit of a mixed bag.
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  And I think the only way for you to really
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  know whether there are still opportunities left to invest in
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  is to have that regular interaction with Indian corporates, to
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  be able to travel there, to be able to gather
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  your own information on the ground.
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  And and that's really one of the strengths of having
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  a team that can access the Indian market.
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  It's obviously much more easy to travel there from Singapore
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  than it would be from the US.
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  So I think understanding that there are quality names that
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  have been investor favourites over the last decade that have
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  helped India grow over the last decade, and also understanding
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  what those same businesses are doing to make sure that
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  they are still winners for the next decade.
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  And then also having your eyes on that collection of
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  impressive new businesses that we alluded to before.
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  These are new sort of business teams and more nimble.
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  The management teams have all been educated overseas or at
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  the best universities in India as well.
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  And these companies are really looking to challenge that status
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  quo that the incumbents have enjoyed so far.
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  So they're creating demand rather than just looking to follow
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  it.
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  So I think really having your eyes on these types
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  of opportunities, having your eyes on what's coming up through
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  the private equity market as well.
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  These are all good ways to keep finding new investment
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  opportunities and for those are willing to do the groundwork.
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  And, and I really emphasize that, I think one of
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  the reasons we make it a point to travel to
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  India so often and to meet with as many decision
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  makers and business leaders as possible.
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  That's really one of the big benefits of being able
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  to collect information and make your decisions based on that
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  data.
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  Excellent.
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  Thank you, Yujong.
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  And you know, as we're getting towards the end of
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  our conversation, of course, there's always the flip side of
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  the risk, right?
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  There's a risk in any investment and given that there's
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  so much unknown on the horizon, even when you think
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  back to what's happening here in the US, Donald Trump,
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  if he gets re elected, has promised tariffs on China,
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  first of all, and he hasn't said anything about India.
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  But is there any risk to additional tariffs put on
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  countries outside of the US?
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  Are there any other risks that you're looking out for
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  when it comes to investing in India?
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  Yes, of course, there are always risks of of this
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  nature.
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  And I think that the US election later in the
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  year as is a big focal watch point for all
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  investors, not just in Asia, but probably globally as well.
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  But there is a big link to the US to
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  a lot of the trade economies here in Asia.
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  And I think so far for the Indian markets, they
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  have been an indirect beneficiary of some of the orders
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  that have come out, executive orders that have come out
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  from the US over the past couple of years.
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  So we mentioned that a global offshoring diversification trade and
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  that certainly helped the Indian manufacturing services companies to benefit
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  from the increasing need of global companies to diversify their
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  supply chains.
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  I think one of the other very common questions that
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  I'm asked from investors is really whether the Indian market
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  has already priced in everything good that's that it's got
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  going for it or there's still more to go.
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  And I think the strength in that domestic economy has
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  left the Indian market looking fairly stretched in terms of
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  valuations if you're looking at price to earnings multiple in
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  particular.
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  But there are still some parts particularly, you know in
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  the small cap and mid cap company space where valuations
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  do look very, very expensive indeed.
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  I think what we try and again stress to our
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  investors is that there's no denying that valuations have run.
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  Indian markets have hit a record highs this year, but
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  there is an inherent strength to the economy in India
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  and they've still got that high single digit GDP growth
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  that you mentioned at the start of the program.
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  And we're expecting corporate earnings growth to be around around
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  the 1012% mark as well.
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  So I think that structural growth story is still intact
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  and that supports what looks at first glance like perhaps
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  overly stretched valuations.
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  So we are still committed to investing in India.
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  And I think if you find the right companies with
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  the right level of growth and with the right type
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  of business model that can succeed over the next decade
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  as well.
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  And then it's still a very interesting country to be
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  invested in.
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  Absolutely.
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  Thank you, Yujiang.
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  And by the way, your view at Aberdeen is very
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  similar to the view here in CIO, where are we
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  expect the Indian stock market's valuation to remain elevated and
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  as you said, expect mid to high single digit returns
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  in the second-half.
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  So thanks for joining us, you Jung, great to have
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  you on the show.
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  And it's, it is a really fascinating and and, and,
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  and interesting conversation to talk about India, especially as far
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  as it's come over the last, you know, decade or
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  so.
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  So great to have you.
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  Thanks for being here.
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  Thank you very much.
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  Thank you again.
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  That was you Jung Oh, investment director on the Asian
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  equities team at Aberdeen.
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  And For more information on what they're doing and of
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  course, what other partners are doing, including our chief investment
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  office here at UBS, visit our website at ubs.com/views.
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  Plus, you can follow us on social media, including our
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  Instagram channel, follow us at at UBS Trending.
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  And if always, if you have any questions about your
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  portfolio, make sure you're talking with your financial advisor.
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  Until next time, I'm Anthony Pastore.
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  Have a great rest of your day everyone, and remember
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  to keep your eyes on what's trending.
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  We'll see you soon.