Indian equities - the fundamentals, trends and beyond (Part 2)

Indian equities - the fundamentals, trends and beyond (2)

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.

Four megatrends that are shaping the future of India

Digital economy is expanding at a rapid pace

  • Digitalisation 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
Figure 1: UPI market share in merchant transactions

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 jewellery, 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, jewellery, and discretionary spending, with significant growth of weddings supporting this demand.
Figure 2: Aggregate household consumption spend

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.
Figure 3: Real exports index

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 three part series on Indian equities. Part 1 was published on 29 November, 2023 and Part 3 was published on 5 March, 2023

Invesco India Equity Fund

An active fund of around 70 companies featuring quality growth characteristics in the fastest growing large country in the world.

The investment concerns the acquisition of units in an actively managed fund and not in a given underlying asset. 

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  • 1 Reuters, 15 November 2023

    2 Mint, 15 November 2023

    3 Bain Analysis

    4 Macquarie Research, August 2023

    5 CRISIL Research, December 2022

    6 Bloomberg, 13 April 2023

    7 Deloitte, June 2021

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