India: The fastest growing economy on the planet

Written by: Amy Carroll Posted: 04/05/2020

BL67_India illoWhat will India’s soaring affluence mean for wealth managers, international investors and the offshore experts who advise them?

The Indian population is getting richer faster than any other economy on the planet. Private wealth in the country soared by 98% between 2008 and 2018 and this is expected to grow even more rapidly over the next decade, according to a recent report by AfrAsia Bank and New World Wealth. 

By 2028, the total private wealth held by Indians will be around $23trn – more than double the total wealth predicted for individuals in the UK and Germany.

What’s more, a surge in urbanisation is creating a substantial and aspirational consumer class. Indeed, by 2030, India’s middle class is expected to grow to almost 80% of the population – up from today’s figure of around 50%. 

That middle class will increase spending on essential products such as food, clothing, gadgets, transport and housing, by between 2 and 2.5 times the current levels, with increases of between 3 and 4 times the current levels predicted for spending on healthcare, education and leisure. 

Wealth culture

This surge in wealth is being driven by India’s educational culture and the country’s large pool of entrepreneurs – and is supported by competitive wages. The prevalence of the English language has also been credited. 

“Since the early 1990s, the Indian economy has undergone massive structural change and this has been reflected in the creation of a large middle class, making India one of the most attractive destinations for international capital,” says Arindam Madhurrya, a Senior Associate within Carey Olsen’s Jersey corporate team, who is qualified to practice law in the UK and India. 

“This has also invariably led to the country producing a large number of high-net-worth and ultra-high-net-worth individuals and families with investments and business interests all over the world. Indeed, the interests of India’s wealthy citizens spread well beyond the country’s borders. 

“The emphasis on education and the high standards of educational institutions in India have contributed to the wealth creation in India and the Indian diaspora overseas,” Madhurrya says. “This has led to Indian expatriates holding senior positions in global corporations and financial institutions which, in my opinion, is leading to a new section of Indians with significant wealth potential.”

As a result, India’s wealthy families represent an exciting and growing opportunity for wealth managers, according to Danielle Organ, Associate Director of Private Client Services at Hawksford.

“There is growing demand for proactive and trusted advice from Indian families, wherever they may be in the world,” Organ says, adding that the emphasis has shifted from tax efficiency to long-term wealth planning, across the generations. 

BL67_India young peopleAnd with trust and confidentiality held in particularly high regard by the Indian community, the Channel Islands are well placed to service its needs.

“We are also well positioned in terms of location, language and time zones, which is why we have been spending an increasing amount of time visiting India, cultivating new relationships and building on those that we have had in place for many years,” adds Organ. “That commitment is important to our Indian clients.”

Madhurrya agrees. “Many financial institutions based out of the Channel Islands have significant clientele both within the Indian community in India and the Indian diaspora outside of India,” he says. “Because of the stable and well-regulated nature of the Channel Islands, wealthy Indian families often choose Channel Islands structures for asset protection and succession planning. 

“Real estate and investment holding vehicles established in the Channel Islands can be particularly attractive for Indian families who hold investments in Europe.”

International appeal

An increasingly wealthy population has also created significant opportunities for investors, and the Channel Islands fund administrators that support them. 

Indeed, private equity deployment in India is booming. In 2019, investment levels hit $37bn, up slightly on $36.16bn in 2018, which was itself a standout year, according to data from Venture Intelligence. 

“The fact that the private equity investment tally of 2019 outdid the previous high of 2018 – despite uncertainties on the economic, political and global trade fronts – is very encouraging,” says Arun Natarajan, Founder of Venture Intelligence. 

“The sheer diversity of investors that are now actively investing in India, by geography – including North America, Asia and the Middle East – provides scope for optimism that the momentum will be maintained.”

Global interest

Indeed, the vast majority of private equity investment in India comes from international investors. While private equity capital deployed in China, for example, is largely renminbi-denominated, in India more than 95% of funds are dollar-denominated and sourced from overseas. 

Infrastructure investment has been a major driver, with recent deals including Brookfield’s $1.9bn investment in Reliance Industries’ east-west gas pipeline. 

Traditional Indian strongholds such as financial services have also continued to grow. But now, escalating wealth has created a surge in deal flow in sectors ranging from consumer and retail, to healthcare, education and real estate. 

As Madhurrya points out: “India’s large population, coupled with the average age being less than 30 years old, creates certain unique opportunities for international investors. 

“While there has been a recent downturn in the economy, there is still immense potential for growth, and India remains an attractive long-term destination for international capital. 

“The government has been creating policies to attract increased investment in manufacturing, infrastructure and skills development. Technology and digital innovation are also attractive sectors,” he adds.

Tech savvy

Indian consumer tech companies in particular continue to draw crowds –understandably, as the country is on track to soon have more than a billion internet users. Furthermore, India is one of the world’s youngest economies. In 2030, 77% of Indians will have been born in the late 1980s or later. 

SoftBank’s $2.5bn investment in Flipkart, which resulted in a $16bn sale to Walmart, is the poster-child for Indian consumer technology. 

But it is not alone. Other recent success stories include vertical e-tailers such as Bigbasket, Lenskart and Pepperfry; food-based e-commerce companies such as Zomato and Swiggy; and travel and hospitality businesses OYORooms and cab firm Ola.  

And when it comes to the internet-based ‘usership’ model, India is leading the world. Indians are culturally predisposed towards using rather than owning – relying on public transport, rather than buying cars, for example. 

As a result, subscription platforms such as the Bombay Shaving Club Company and Fab Bag are proving a hit, providing innovative opportunities for savvy investors. 

Indeed, the consumer sector more broadly has attracted increasing levels of investment as affluence continues to climb. Deals of note include food sector stars Ching’s Secret and Gemini Edibles, as well as clothing business V-Bazaar Retail. 

BL67_India peopleIn the healthcare arena, meanwhile, investors are seeking out targets across the spectrum, ranging from pharmaceuticals to equipment, specialist hospitals and diagnostics. Star Health Insurance has been a standout success in recent years.

Exits have also remained strong in India, signalling investor confidence in the Indian ecosystem and healthy public markets. A total of 265 exits valued at almost $33bn were completed in 2018. 

While almost half of this exit value can be attributed to Walmart’s acquisition of Flipkart, even without this mega-sale, this was one of the best years for exits in the past decade.

Stellar private equity disposals included Apax Partners’ sale of GlobalLogic, which generated a return more than five times its original investment value; private equity firm TPG’s sale of Vishal Mega Mart; and Blackstone’s sale of Intelenet Global Services to French outsourcing giant Teleperformance for $1bn.

A coming of age

India’s private equity industry has certainly matured in recent years and, as a result, the variety of deals on offer is proliferating. Control-orientated transactions are increasingly common as entrepreneurs and family-owned businesses look for succession solutions. 

Indian companies have also come under increased pressure to reduce debt overhang, leading to the disposal of non-core assets.

In addition, India now has a rich source of professional managers keen to have skin in the game, as well as an exceptional class of professional entrepreneurs. 

The government has made radical changes to create a more business-friendly environment, including the introduction of a uniform tax code across all 29 states. And the market remains less competitive than neighbouring China or the more mature US and European markets. 

However, valuations have increased and there are undoubtedly still hurdles that international investors face when they are navigating the region – in particular the lack of a well-developed leveraged finance market. 

Opacity and integrity issues also occasionally remain, while regulatory obstacles and sudden changes in government policy are not uncommon. 

For example, in 2010, the government imposed restrictions on micro finance following a number of well publicised suicides, in a move that all but shut down the industry, crippling some private equity deals in the sector. 

And in 2016, the demonetisation of high-value currency notes, designed to strike at the heart of the black market, effectively put 86% of the currency out of circulation. This severely hampered the cash economy, and the ripple effects are still being felt today. 

“As an emerging economy, there remain significant challenges to doing business in India,” confirms Madhurrya. “Setting up a business in the country may involve onerous legal and regulatory processes; there continue to be stringent exchange controls on repatriation of capital; and the court system and enforcement of contracts can be slower than international investors would expect. 

“Having said that, Indian business relations tend to be quite ‘sticky’, so once the initial issues are ironed out, India can be a great place to develop long-term business relationships.”

And the Channel Islands look to be well placed to support growing international investment in India. “Jersey and Guernsey vehicles are globally recognised and trusted by investors and are used for some of the world’s largest funds,” Madhurrya says. 

The Indian wealth story is unstoppable and the wise are getting in on the act. 

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