Indian equities - the fundamentals, trends and beyond (Part 2)
![Indian equities - the fundamentals, trends and beyond (2)](/content/dam/invesco/apac-master/en/image/insights/2024/equities/january/Indian-equities-the-fundamentals-trends-and-beyond-2/HERO-ARTCL-indian-equities.jpg)
Following the inclusion of India government bonds into JPMorgan’s emerging market sovereign bond index, MSCI raised India’s weightage in Global Standard (Emerging Markets) index to 16.3% from 15.9% in its latest rebalancing.1 The adjustment is expected to attract a net inflow of $1.5 billion.2
There are countless investment opportunities in India, and we selected four fundamental trends that are worth long-term investors’ attention. Based on these trends, we are positive on financials, manufacturing and consumers sectors.
Digital economy is expanding at a rapid pace
- Digitalization is a key theme in India, in particular the digital adoption in financial services and ecommerce.
- UPI (Unified Payments Interface), an instant payment system for Indian nationals, has seen significant growth since its launch in 2016.
- Ecommerce market share is expected to grow from US$155 billion in 2022 to US$900 billion by 2030.3
![UPI market share in merchant transactions](/content/dam/invesco/apac-master/en/image/insights/2024/equities/january/Indian-equities-the-fundamentals-trends-and-beyond-2/chart-1.jpg)
Source: Goldman Sachs
The surge in discretionary consumption
- The retail market in India has experienced a substantial increase in size, growing from US$400 billion to ~US$650-700 billion over the last decade.4
- With the rise of income, the share of discretionary spending has increased from 13% to 24% between 2000 and 2020, it is expected to reach 33% by 2030.4
- Among the discretionary categories, we see huge potential in jewelry, wedding and other associated sectors.
- It is estimated that around US$125 to $250 billion is spent on Indian weddings per year and around 9.5 to 10 million weddings occur annually across the country.5
- There has been a demand surge in gold, jewelry, and discretionary spending, with significant growth of weddings supporting this demand.
![Aggregate household consumption spend](/content/dam/invesco/apac-master/en/image/insights/2024/equities/january/Indian-equities-the-fundamentals-trends-and-beyond-2/chart-2.jpg)
Source: NFHS, IndiaDataHub, Macquarie Research, August 2023
The next global manufacturing hub
- New India refers to the high-tech sectors that is the key driver of GDP growth. Tech related export volumes have risen sharply over the past three years, both in goods and services.
- Apple iPhone exports from India soars to $7 billion in the last fiscal year, approximately equals to 7% of the whole iPhone production.6
- Besides, India is set to benefit from the diversification strategies adopted by multinational manufacturers in recent years to mitigate geopolitical and energy-related uncertainties, including China Plus One and Euro Plus One policy.
- The government has introduced Production Linked Incentive Scheme (PLI Scheme) to foster domestic manufacturing capabilities.
![Real exports index](/content/dam/invesco/apac-master/en/image/insights/2024/equities/january/Indian-equities-the-fundamentals-trends-and-beyond-2/chart-3.jpg)
Source: OECD, World Bank, CEIC, HSBC
The world’s leading GCC
- Global capability centers (GCC) are the offshore units that provide various support services including IT, finance, human resources, and analytics, to multinational companies.
- India is home to global capability centers of more than 1,300 multinational companies, taking up 50% of the global GCC market.7 The sector directly employed more than 1.3 million people and generated US$33.8 billion in annual revenue as of 2020.7
- GCC not only has a direct impact on jobs and wages within the sector, but also brings about positive ripple effects to subsequent suppliers and the overall economy.
- With India’s leading position in the GCC market, we expect consumer discretionary sector to be benefited in the long run as wages increase and economy matures.
This is Part 2 of a two part series on Indian equities. Part 1 was published on November 29, 2023 and Part 3 was published on March 5, 2024.
References:
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1
Reuters, 15 November 2023
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2
Mint, 15 November 2023
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3
Bain Analysis
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4
Macquarie Research, August 2023
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5
CRISIL Research, December 2022
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6
Bloomberg, 13 April 2023
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7
Deloitte, June 2021