It amuses me when people say that India’s growth story has never quite started. We must acknowledge that there have been periods where there has been a slowdown of growth in India. For example, growth slowed when Narendra Modi came to power almost 10 years ago, but it was still much stronger than that of most Western countries.
However, if we go back to 1947, when India became independent, it has grown from a small country to a US$3.5 trillion economy. It has recently overtaken France and the UK. In the next three to five years, it will overtake Germany and go on to surpass Japan to become the world’s third-largest economy. The consensus forecast is that over the next ten years, India will experience more growth than it has had in its entire history. If we consider the next 30 years, we could be looking at ten times the growth. Many of the founders or CEOs of the 10 largest companies in the world have recently said that India is their biggest bet for the next 10 years.
India has the pillars to create trillions of dollars of new economic growth. With a population of one and a half billion people, with an average age of 20-something, India has the most digitized population on the planet. Nearly one and a half billion people in India have digital identification, and everything you do in India now is linked to digital ID. India leads the world in this sense, and more money is being spent on infrastructure in India than in any other country in the world. That’s what will drive growth.
If we look at the last 20 years, a period in which we have had a global banking crisis and all sorts of global and domestic challenges, the India index has outperformed China, outperformed America, outperformed emerging markets, Europe, and Japan – even when measured in USD.
We must acknowledge that there are risks involved in investing in India. However, there are also risks in investing in pretty much any other market. So, whether you’re looking at the US, whether you’re looking at Europe, the UK, Japan, or whether we’re looking at cash, bonds, or property, there are risks everywhere. We just need to understand them enough to be able to manage them.
I believe that it can be argued that there’s more structural risk in the Western world today. In India, of course, there remain some geopolitical risks, corruption, and concerns about governance. These are all issues that we need to monitor and understand. We must acknowledge that they exist in India, but they exist in every country and every asset class.
I’ve spent 12 years working on India. For a very long period of time, I worked with the Reliance group in India, the most powerful corporate house. But in particular, what originally attracted me to Reliance was a gentleman called Madhusudan Kela, who will be well known to some people. Kela transformed Reliance’s financial group and became one of the world’s most successful investors. He has now set up on his own with his highly talented team and is Cohesion’s partner through an exclusive joint venture, which provides global investors with access that is critical to successful investment in India.
Two years ago, we wrote an investor newsletter in which we reminded clients that 30 years ago in the UK, Margaret Thatcher disinvested state-controlled businesses, many of which were not considered as attractive as private sector businesses, and put them on the stock market. Modi concluded that India had to follow a similar path, disinvesting government control of businesses, some of which had not performed well in the past and had been afflicted by weaker governance, mediocre management, poor asset quality, and weak balance sheets. They often requested more cash but did not perform well for investors.
Madhu understood that this was about to change under Modi. These companies have now really got their act together, with really good management teams, strong governance, and high asset quality. They have strong balance sheets, but they were somehow still cheap at that time because the market thought they were bad businesses.
A case in point: two years ago, everyone thought COVID would have a negative impact
on Indian banks, particularly public sector banks. That’s when we started buying. We made two or three times our money on public sector banks in 12 to 18 months. Even State Bank of India, which people thought was just a sponge to mop up the COVID problems, we bought at a $25 billion market cap and it went up to $75 billion. So we made three times our initial investment during that period.
Warren Buffett famously said that the ideal holding period for the best investments is forever. Well, we don’t have to hold something forever, but family offices often look at long-term investing. Of course, if you’re in the best market where the best managers are present, and you hold that for a long time, then you can really benefit from the power of compounding. So time is really important.
