Page 36 - DIY Investor Magazine | Issue 37

Apr 2023 36 DIY Investor Magazine · Fans of Kevin Costner may recall this quote from 1989 film Field of Dreams which sprung to mind on a recent visit to India. By Rob Brewis, Aubrey Capital Management Indian infrastructure is shifting from a ‘hindrance’ to a ‘help’. The Economist said: ‘India is getting an eye-wateringly big transport upgrade’; so, how does this help Aubrey Emerging Markets - investors in EM consumption? The breakneck pace of infrastructure spend is most obvious in Mumbai, with 10 metro lines being built simultaneously and a highly ambitious, partly submerged coastal expressway. In Indore, another metro line is under construction as a pre- emptive build we’re used to in China (‘if you build it...’). The Modi administration seems to get little credit, but we remember the ‘great reforms’ of Narasimha Rao’s government in the early 1990s intended to rid India of its ‘Hindu rate of growth’, and the numbers clearly suggest otherwise. In 1990, China and India had the same GDP per capita of around 350 USD per head of population. Today, China’s number is 5x greater: 12,500 USD vs 2,500 USD. There was precious little progress before Modi. India’s investment boom a decade ago, was fueled by public sector banks, whose balance sheets were compromised; Modi’s administration finally solved the state banking problems through a combination of mergers and recapitalisation. India’s now well-capitalised banking system is why a cyclical upturn is poised to reinforce the well-known structural story, with loan growth rising steadily for the first time in a decade. The major driver for the coming investment upturn will be private sector corporate capex from domestic corporates, most of whom are starting from a very strong and underleveraged financial position, as well as foreign companies. At 80bn USD last year, foreign direct investment was at record levels for India, but still small in Chinese terms. Modi’s promotion body, ‘Invest India’, is helping, as are his production- linked incentive schemes. So too are state incentives as competition for investment intensifies. Poster boy is Apple, whose iPhone exports from India grew from 100 million USD/month last April to a staggering 1bn USD/month in January this year, but manufacturing investment is broadening rapidly with flows from 162 countries, into 61 sectors in 31 states and territories - nearly all of them! India is now, not only a realistic destination for those seeking to diversify from China, but becoming a more obvious one; that is not to say investment won’t continue to flow into Vietnam, Indonesia, or Mexico, but an ever-increasing share is heading to India. And this is where consumption comes in. India has low urbanisation at around 35%, and the opportunity is in growing this, but why would you leave the farm if there are no jobs in the towns or cities? What this investment upcycle implies is that rising urban job creation will drive urbanisation, and incomes at a multiple of rural levels will drive consumption. Witness Sakir, our friendly Mumbai Uber driver; from the poor state of Chhattisgarh, he taught himself English and negotiated am outrageous day rate of 2,500 INR (30 USD). With his wife, and two children he lives in a tenement, but aspires to an apartment. He keeps them clothed, housed, and fed and also pays for private education for his children so they can have a better future, and some funds also return to relatives back home - m 30 USD, less the cost of running a half-respectable Maruti for the day, goes a long way. INDIA: ‘IF YOU BUILD IT, THEY WILL COME’