India is experiencing a resurgence as one of the world’s largest economies. According to the late Cambridge professor Angus Maddison, India’s share of the world’s income peaked at over 20% in 1700, about equal to all of Europe’s share at the time. By 1952, however, India’s share of the world’s income has shrunk to just 3.8%, despite its status as the world’s second most populous country. Many economic liberalization policies were implemented beginning in 1991 (most reforms were forced upon India in exchange for an IMF bailout in 1991)–beginning a period of economic growth acceleration. From 2003-2007, Indian real GDP growth averaged 9% a year–hitting double digits immediately after the 2007-2009 global financial crisis. Despite years of high growth, as well as a highly educated and young workforce, the Indian economy slowed down dramatically beginning in 2012, registering just 4.4% growth that year. Today, the size of India’s economy (in nominal terms) is only US$1.9 trillion, equivalent to 2.7% of world GDP.
Since then, Indian economic growth has regained ground. The IMF recently raised its 2015 GDP growth estimate from 6.0% to 6.4%. We expect Indian real GDP growth to hit 7% in the next several years–surpassing that of China–and for the size of the Indian economy to surpass US$5 trillion (in nominal terms) by the end of 2020. As we mentioned in two of our recent articles on MarketWatch (“Why Indian stocks are a buy right now” and “Top three Indian stocks to buy (and hold)“), much of this growth will be driven by business-friendly reforms implemented by the Modi government. These reforms include: 1) removing barriers to greater foreign investments, especially in the defense and insurance sectors, 2) a national policy to provide 150 million Indians a bank account by 2018, 3) a national plan to spend $1 trillion on infrastructure investments, 4) a more independent central banking policy with a new monetary policy framework of inflation targeting, and 5) a concerted crackdown on cronyism among the highest levels of government.
The recent 30% decline in global crude oil prices (India imports 70% of its energy needs)–as well as the just-announced deregulation in diesel prices–will also provide a significant tailwind to the Indian economy. We expect Brent crude to mostly trade within the US$75-US$95 a barrel range for the next several years, thus assisting India’s growth plans.
We believe U.S.-India cross-border financing activities and investment opportunities will grow significantly as the Indian economy generates unprecedented amounts of entrepreneurial talent and wealth over the next decade. CB Capital Partners is already engaged in U.S.-India cross-border corporate finance transactions. We will be in Mumbai, Hyderabad, and Pune to meet clients and research investment opportunities for two weeks during November 15-29. We believe there are many industries poised for substantial growth and thus represent attractive, long-term investment opportunities. Following are highlights of some industries that we like–and where our clients are actively doing business in.
Digital Media: Nearly 300 million Indians go online to listen to music, watch a film, a TV show, or cricket match through their cell phones, computers, or tablets. Today, Indian digital media garner over $4 billion in digital pay revenues annually, with digital advertisement revenues at nearly $400 million. Both are expected to grow at double digits for the foreseeable future. In February 2012, Disney paid almost $500 million for the remaining stake of UTV that it did not already own—a huge bet on the emerging Indian middle class. Within this industry, CB Capital Partners is heavily involved in providing financing in the Indian animation industry. The Indian animation industry has an 8.2% market share in Asia-Pacific, and is expected to grow by over 20% annually to $2.9 billion by 2015.
eCommerce: India is experiencing the most rapid growth of online buyers in history. Amazon recently announced that its Indian online business is on track to become the fastest country ever to reach $1 billion in sales. On July 29, Flipkart, a homegrown eCommerce company based in Bangalore, announced that it raised $1 billion from Tiger Global Management, Accel Partners, Morgan Stanley Investment Management, and Singapore’s GIC. Forrester estimates the number of Indian eCommerce customers will reach 39 million by the end of this year, and an astonishing 128 million by the end of 2018. By the end of 2020, the Indian middle class population (the target market for apparel, consumer electronics, and personal care products) will rise to over 300 million, or the equivalent to the size of the U.S. population. Amazon already announced on July 30 to invest an additional $2 billion into its Indian business.
Healthcare: CB Capital Partners has substantial financing and investment experience across the healthcare industry (30% of all our transactions have been in the healthcare industry), including pharmaceuticals, generics, biotechnology, stem cells, medical devices, medical IT, and hospitals. Another sub-industry we are tracking is the medical tourism industry in India. There will be many opportunities to invest in hospitals or hospital-related services (such as medical hotels) that specialize in this trend as the global population ages. It is estimated the Indian medical tourism industry is now worth $2 billion, with over 150,000 patients traveling to India each year for medical procedures.
Finance: The Modi government’s initiative to provide 150 million Indians a bank account by 2018 is significant, as only 60% of India’s population have access to financial services today. Financial services are essential to a modern, growing society. While many Indians had traditionally put their savings in physical assets such as gold, this option will no longer be attractive as inflation trends down (the Indian CPI declined to an all-time low of 6.4% in September). Banks in particular will also benefit from the government’s recent increase in the housing loan interest tax deduction from 150,000 to 200,000 rupees (or $2,450 to $3,300) a year as this policy will increase demand for residential mortgage loans.
CB Capital Partners is ready to assist both our U.S. and Indian clients who want to learn more or are already engaged in U.S.-Indian cross-border financing or fund-raising activities. Our strategy in India covers a full suite of traditional investment banking services such as equity & debt raises, M&A services, and fairness opinions.