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Investing in India: A Look at the Long-Term Opportunity

By Richard "Crit" Thomas, CFA, CAIA
International Equities
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Architectural Detail of the Taj Mahal in Agra, India

The transformative increase in India’s middle class — supported by pro-growth policies and the development of modern-state capacity — has the potential to create a powerful long-term consumption tailwind. In our view, this backdrop is reason to consider it amongst Emerging Markets opportunities for long-term, above-average earnings growth.

India’s market and economy may continue to face headwinds and make headlines however we believe there’s more there than meets the eye. Risks remain — including inflation, a demographic wave that will require continued job growth, and successful reform implementation. Overall, despite short-term issues in the economy, trends are evident that may lead to higher-quality, more sustainable growth for what could be the world’s most populous nation by 2030.

India is an important Emerging Markets country to consider for the reasons below:

  • India is the second most populous country in the world at 1.35 billion. It is expected to become the most populous country later this decade.1
  • Its rate of population growth of 1.0 percent is double that of China.1
  • The average age in India is 28 years, making it one of the youngest countries in the world  (China’s average age is 37 years).
  • By 2030, India is projected to have the largest and youngest workforce population in the world. See Exhibit below.2
  • Only 6.7 percent of India’s population is over the age of 65.3
  • Urbanization and rising incomes will lead to significant consumer spending growth.
  • India will continue on its path as one of the world’s most dynamic consumption environments, propelled by five major drivers:
    • Income growth
    • Steady and dispersed urbanization
    • Favorable demographics
    • Technology and innovation
    • Evolving consumer attitudes4

Exhibit2
In 2030, 77% of India’s population will be comprised of Millennials and Generation Z.

Median age in years for India, United States, and China in 2030

 
  • While the rate of urbanization growth in India has been rapid, India’s rural population still makes up 66 percent of the country. In China the rural population is closer to 40 percent.1
  • Smartphone penetration is at 24 percent, while 40 percent own mobile phones without internet access.5 Smartphone penetration is expected to nearly double over the next three years. In China it is already over 60 percent.6

Technology Is Booming

India has produced a digital-job subculture of freelance software engineers who create apps for smartphones. Apple CEO Tim Cook says software developers based in India have produced almost 100,000 apps for his company’s App Store. This number understates app development in India as most Indian developers are focused on the Android operating system.7

India’s internet population is expected to grow from over 600 million in 2020 to more than 800 million in 2025 even as online spending will increase from $40-50 billion in 2020 to $130-150 billion in 2025 — growing at a compound annual growth rate of around 25 percent.8

There are three drivers behind the growth in internet population growth:

  • Drop in price of smart phones
  • Drop in price of data
  • Expansion of mobile-specific local language content

The Economy Is Evolving

The Indian economy is going through a major structural adjustment as multiple reforms have been put in place to shift to a formal economy from an informal economy. The formal economy only represents about 10 percent of the total.9 This is what government policies are focused on fostering at the expense of the informal economy (crony capitalism).

  • Despite economic slowing, a recent survey of India’s CEOs by HSBC found that 96 percent are optimistic about sales growth in 2020 and half of them expect sales growth of 15 percent annualized over the next five years. A year ago only 79 percent were optimistic.10
  • India has a relatively closed economy with limited exposure to the integrated global supply chains that were impacted by tariffs. “India has become one of the few places where investors could obtain diversifying growth and idiosyncratic returns.”11

Selectivity Matters

The current situation underscores the importance of selectivity when investing in emerging markets. Understanding the local context and having extensive business-model experience is essential when investing in a market of change which can create powerful opportunities for patient and business-focused investors.


1 World Bank; https://www.worldbank.org/en/country/india/overview
2 Consultancy.org; https://www.consultancy.asia/news/2144/economic-boom-will-see-500-million-indians-enter-middle-class-within-a-decade
3 CIA World Factbook; https://www.cia.gov/library/publications/resources/the-world-factbook/geos/print_in.html
4 Bain & Company;. https://www.bain.com/insights/how-india-will-consume-in-2030-10-mega-trends/
5 Pew Research Center; https://www.pewresearch.org/internet/2019/11/20/mobile-divides-in-emerging-economies/
6 Cisco; https://www.cisco. com/c/en/us/solutions/collateral/service-provider/visual-networking-index-vni/white-paper-c11-741490.html
7 McKinsey – Digital India April 2019
8 Google and Boston Consulting Group (Feb 2018); https://media-publications.bcg.com/pdf/BCG-Google-Digital-Consumer-Spending-India-Feb-2018.pdf
9 The Wire; https://thewire.in/labour/nearly-81-of-the-employed-in-india-are-in-the-informal-sector-ilo
10 https://www.thehindubusinessline.com/economy/indian-cos-optimistic-about-growth-prospects-next-year-says-hsbc-survey/article29890646.ece Nov 2019.
11 The Carlyle Group; https://www.carlyle.com/global-insights/research/five-questions-global-investing-2020

A Word About Risk
Investing in Equities, including International, Emerging and Frontier Market equities are subject to market volatility and loss. They also carry the associated risks of economic and political instability, market liquidity, currency volatility and differences in accounting standards. The risks associated with investing in international markets are magnified in emerging markets and frontier markets.

Performance data quoted represents past performance, which is no guarantee of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be higher or lower than performance data given. For performance information current to the most recent month-end, visit TouchstoneInvestments.com/mutual-funds.

Please consider the investment objectives, risks, charges and expenses of the fund carefully before investing. The prospectus and the summary prospectus contain this and other information about the Fund. To obtain a prospectus or a summary prospectus, contact your financial advisor or download and/or request one on the resources section or call Touchstone at 800-638-8194. Please read the prospectus and/or summary prospectus carefully before investing.

Touchstone Funds are distributed by Touchstone Securities, Inc.*
*A registered broker-dealer and member FINRA/SIPC.
Touchstone is a member of Western & Southern Financial Group

Not FDIC Insured | No Bank Guarantee | May Lose Value

About the Author

crit thomas global market strategist

Richard "Crit" Thomas, CFA, CAIA

Global Market Strategist
Crit is responsible for examining and evaluating economic conditions, generating insights and providing a sharpened perspective on investment strategies for enriched portfolio construction.

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