Investment Outlook , Published Feb 18, 2020
India can achieve its goal by unlocking its demographic dividend, focusing on new sectors, boosting its digital revolution and investing in infrastructure. This will generate innumerable wealth creation opportunities for investors and HNIs.
India has been one of the fastest-growing economies of the past decade. It took us 61 years to become a US $1 trillion economy and eight years to add the next US $1 trillion. At US $2.8 trillion, we now aim to join the US $5 trillion club by 2024 and to become the third-largest economy in the world.
Achieving such growth (of almost 12 percent p.a. in nominal terms) will require exceptional structural focus. We will need to unlock our demographic dividend, focus on new sectors and markets, leverage our ongoing digital revolution and invest in infrastructure alongside the support of stable governance and strong policy framework. Let’s look at the key drivers and challenges before us as we chase our ambitious target:
India continues to chart upon the parameter of ease of doing business (from being ranked 142nd in 2014 to 63rd in 2019). Additionally, a strong governance framework provides solutions to transform ‘Bottlenecks’ to ‘Enablers’. GST, Insolvency and Bankruptcy Code, reduction of corporate tax rates are landmark reforms which will have a big bearing if we give them time. India will continue to reform as a key agenda, with even better (de)regulation and execution to attract investments and innovation.
What does this mean for the Private Sector?
From an opportunity perspective, the journey towards a US $5 trillion economy will provide innumerable opportunities to participate in wealth creation. As highlighted in the economic survey, India will need significant participation from private investors to boost investment and GDP.
This will result in more companies seeking investments, higher fundraising activities and the formation of newer asset classes as more money than before is invested in India’s economy. Further, the government has exempted startups from incurring angel tax, pushed for the development of bond market and relaxed FDI sectoral caps – providing greater opportunities for investors. Alongside, the market has reacted favourably towards innovative investment opportunities including Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs).
Amid the dynamic entrepreneurial landscape brimming with first-time entrepreneurs, innovative startups focused on solving problems specific to India, and companies choosing to pursue growth, private risk capital is expected to dominate the investment landscape. In 2019, India recorded its highest private equity (PE) investment ever – with US $37 billion invested across 700+ companies.
However, even at $37 billion, PE investments in India are still at 1.3 percent of GDP. (Relatively, PE Investments in US are at ~3.0 percent of GDP).
With long-runway for growth of PE investments in India, PE/VC fund managers outperforming public market peers/index and keeping in mind the ever-growing role of PE in the development of the Indian economy, HNIs and investors would be well placed to invest in PE/VCs and participate in the structural growth story of India.
Finally, I believe that as the juggernaut of the Indian economy continues, it’s not just about becoming a US $5 trillion economy till 2024, or a US $10 trillion economy by 2030. The real question is can India continue to grow at 8-9 percent year after year for the next two-three decades? Along the way, there will be innumerable opportunities for investors and HNIs to leverage wealth creation opportunity.
About Renuka Ramnath
Renuka Ramnath is the Founder, MD & CEO of Multiples Alternate Asset Management. Prior to founding Multiples in 2009, Renuka built several businesses in the ICICI Group including the investment banking, e-commerce and private equity businesses.
Investment Outlook 2020