I am always attracted to standout investment opportunities where I believe, with the right time horizon, investors have the real potential to generate significant wealth.
It’s hard to think of a better example today than India for investors. However, this is one market that is overlooked by many despite the huge potential that is on offer.
As a starting point, India is the seventh largest and fastest growing major economy in the world today and is forecast to create considerably more new wealth in the next decade than it has done in its entire history, on course to be a top three global economy within the next few years. By 2050, India is predicted to multiply its GDP by 13 times versus the US that will barely double. This multi trillion-dollar wealth creation presents tremendous opportunities for investors, enabling access to investment in companies and sectors that could grow substantially over the next few years.
To really understand the potential for India’s economy and stock market to grow, and to add trillions of dollars of value and wealth creation, we must consider the critical drivers that can deliver this outcome. Whenever there is long-term sustainable economic growth in the world, two cornerstone pillars are normally in place: the country must have good and improving demographics, and it must improve its productivity.
Starting with the demographics, India already has one of the two largest populations in the world, and its people are becoming younger and wealthier, with strong growth in the middle class. Of course, India is coming from a very low base, and is currently 22 times less productive than China and some 50 times less productive than the US. However, improving infrastructure and technology are two areas that will help to underpin change. Allied to what are arguably the world’s best demographics, this can drive a significant improvement in GDP expansion, resulting in a highly productive and fast-growing economic machine. History suggests that this should also be reflected in considerable stock market growth.
This growth is further underpinned by a strong macro environment and economic tailwinds in India. The Modi government has an agenda of reforms to transform India into a star economy.
It could be argued that India’s two biggest challenges historically have been a cash driven economy and widespread corruption. Mr Modi has been addressing these issues head on and the recent bold move of demonetisation has left no one in doubt that Mr Modi will stop at nothing to clean up his country and build a globally respected super power, unleashing its real potential.
Another key benefit of India’s recent demonetisation is that this has led to more than US$200 billion entering the banking system in a matter of weeks, money that now is declared into the formal system and will find its way also into financial offerings and markets. Furthermore, India’s savings rate is around US$600 billion a year (saved annually by Indians). Historically only a very tiny percentage was invested in financial markets. But this is now changing, with the potential to transform the Indian stock market.
For those who are convinced that India offers a highly credible investment destination, the next big question has to be how to access this opportunity as an investor.
As convinced as I am about investing in India, another really important consideration is to invest with a large and well-resourced domestic India-based manager. Why? Surely this isn’t necessary with so much information available on companies and markets today? Actually, this broad-based assumption could not be more wrong.
Nearly 90 per cent of companies with market caps of US$15 million and above are mid- and small caps (less than US$3 billion in valuation). Of these, 48 per cent have no broker coverage and 17 per cent have only one broker providing research. In other words, most of the market has little or no research coverage.
Why does this matter? Clearly an investor would commit only to companies that they are aware of and, where those companies are thought to have the potential to grow. Fifteen years ago there were barely any IT or pharma stocks listed on the Indian market, yet today there are many huge companies in these sectors. In a country that is experiencing such long-term sustainable economic growth, and where a multi trillion-dollar wealth creation opportunity is forecast for the stock market, many new sectors and themes are starting to emerge.
Many companies offer potential for transformational growth and, unless a manager is on the ground in India, fully resourced, with a strong research capability and reach, these investible companies will be missed. Today India has many companies with multi-billion-dollar market caps, which 15 years ago were virtually unknown.
The real opportunity for investors is not only to tap into this highly sustainable and stand out growth story but to invest in the fastest growing parts of the economy, in companies with the potential to generate significant returns in the years ahead.
Cohesion Investments has partnered exclusively with Reliance to bring a Luxembourg regulated “Best Ideas” fund to market, targeted at the ultra-high net worth investment community. Reliance has a dominant position in India.It is not just a household name but, in our opinion, it is the household name in India, backed by the Ambani family, one of the richest and most successful families in the world.
Reliance has more than 20 years of experience in managing mutual funds in India and since the launch of its flagship fund in October 1995, has generated a staggering 100x return\* versus the Indian Nifty c10x.
More information on how to invest is available from Cohesion Investments (www. cohesioninvestments.com)
Spike Hughes is Founder & CEO of Cohesion Investments.
