India’s New Look: Paving Roads to Efficiency and Investment

April 26, 2023

4 min read

Denise Boynton| Portfolio Manager—Emerging Markets Strategic Core Equities

India’s ability to attract foreign investment has long been hampered by subpar infrastructure and excessive bureaucracy. But reputations can obscure real change. On a recent research trip, we found that India is paving highways, building metro lines and launching efficiency efforts that could attract investment while energizing the economy and the stock market.

As global companies diversify supply chains away from China, India has been slow to fill the gaps. While India has just overtaken China as the world’s most-populous nation and boasts a thriving technology sector, it has often been overlooked as the world’s next manufacturing hub because it lacks manufacturing expertise and struggles with supply chain issues.

However, multinationals are showing growing interest in the country, with companies including Samsung, Siemens and Pegatron announcing plans to set up manufacturing facilities in India over the past couple of years. And last month, Taiwan-based Foxconn, a key Apple supplier, made a vote of confidence in India, announcing plans to spend $200 million on the first facility to produce AirPods outside China. As a result, India’s electronics exports have increased sharply since 2020 (Display).

India’s Electronics Exports Surge as More Multinationals Move In

Bar chart shows a sharp sixfold increase in India’s electronics goods exports from 2014 through early 2023.

Past performance and current analysis do not guarantee future results.
As of March 31, 2023
Source: AXIS Capital and UNCTAD

Equity investors in emerging markets should take note. If more business comes to India, we believe it could foster opportunities in publicly traded stocks. To see how India is changing, we conducted a grassroots research trip earlier this year to learn from the experiences of consumers, small business owners and companies.

Transportation Upgrades are Widespread

Getting around in India has always posed a challenge for visitors. Mumbai is a densely packed urban sprawl that suffers from some of the worst traffic in the world. The city of 21 million people has only three metro lines, but we saw signs of metro construction everywhere. Five new metro lines are under construction, with one expected to be completed this year and the rest by 2025. An expanded transportation network will provide Mumbai with a badly needed upgrade that will facilitate efficiency for residents, tourists and businesspeople.

Intercity transport is also being modernized. For example, the technology hubs of Bangalore and Mysore are just 140 kilometers apart, but poor road links meant it took commuters three hours to make the journey. During our trip, we drove down the smooth, modern expressway under construction that is expected to be completed later this year. When fully open, it should cut the travel time in half to 90 minutes—a real game changer.

Cutting Red Tape for Business

Streamlined travel comes alongside efficiency efforts that are being felt in many areas of life. We met several small business owners who told us that India’s notorious red tape is beginning to loosen, and government incentives are available and accessible for businesses in an array of industries.

In Bangalore, a snack company founder named Suhasini praised the government for helping her establish the business with loans and guidance. The process was so smooth that Suhasini said she would prefer government grants and loans over venture capital investment to start a future business.

Back in Mysore, a steel distributor named Sandeep told us that his revenues had mushroomed over the last decade. The biggest factor in his success? Less government hassle. Entrepreneurs can now begin working immediately after securing approval. Before the bureaucracy was slashed, he said, a business owner needed permissions from more than 30 officials in a process that often dragged on for months.

Meanwhile, the state government has built industrial parks providing a further boost for businesses like the steel distributor. In recent years, industrial parks have popped up across Tier 1 cities like Bangalore and Tier 2 cities like Mysore. Many are being built close to airports, giving businesses and investors good reasons to set up shop in these cities.

Stories like these, playing out many times over, reflect India’s improving competitiveness rankings. According to IMD’s World Competitiveness Center, India’s economic competitiveness ranking rose from 44th in 2018 to 37th in 2022, out of 63 countries surveyed in developed and emerging markets. India’s progress has been driven by steady improvements in government efficiency, business efficiency and infrastructure, the report said.

Digital Infrastructure Is Expanding Rapidly

Alongside improvements in bureaucracy and physical infrastructure, India’s digital infrastructure is rapidly developing. In our meetings with consumers, we found that cutting-edge smartphones and stock trading apps are very popular. Digital payment is widespread, from market stalls to small family-owned shops to power utilities.

Digital wallets account for 35% of retail sales in India, and digital payments are soaring (Display). While mobile phone penetration is still relatively low at 66% of the population, that leaves plenty of room for growth. We believe India’s increasingly digital landscape is enabling the economy to leapfrog into a new era and is another positive attribute for attracting new investment.

Popularity of Mobile Money Fuels Digital Payment Growth in India

Bar chart on left shows digital wallet retail sales penetration in key regions, with India near the top. Right chart shows sharp increase in India’s digital payments since 2017.

Past performance and current analysis do not guarantee future results.
*Estimated share of transaction value at retail points of sale, excluding e-commerce payments, credit cards and debit cards
†Excluding credit cards and debit cards
Left display as of December 31, 2022; right display as of March 31, 2023
Source: FIS Global Payments Report 2023, Morgan Stanley, Reserve Bank of India and AllianceBernstein (AB)

India’s Golden Opportunity Fosters Investment Potential

So will India win more manufacturing business as international companies seek to reduce dependence on China? It’s too soon to say. But for now, as emerging-market countries jostle to secure reshoring operations from China, we believe India has a golden opportunity to play a bigger role in the reshoring wave.

In our view, improvements in infrastructure and business efficiency will cascade across the economy, creating positive business dynamics for many Indian companies. Potential beneficiaries include domestic banks and infrastructure-related companies in construction, commercial vehicles, cement, steel and real estate. Identifying specific investment opportunities requires deep fundamental research into individual company business models.

Slow-moving macroeconomic data provide little guidance as to how this will play out. Insights gleaned from on-the-ground research can help investors gain an edge at spotting surprising opportunities in Indian stocks as the country reinvents itself to benefit from Asia’s rapidly changing business landscape.

The views expressed herein do not constitute research, investment advice or trade recommendations, and do not necessarily represent the views of all AB portfolio-management teams and are subject to change over time.

About the Author

Denise Boynton

Denise Boynton is a Portfolio Manager for Emerging Markets Strategic Core Equities. She joined AB in 2006. Boynton spent several years in AB's Hong Kong office, where she led AB's emerging-market grassroots research efforts, organizing on-the-ground visits with consumers across different emerging markets to identify upcoming trends. Over the years, she has covered a broad set of industries across emerging and developed markets. Previously, Boynton worked on the Equity Capital Markets and Convertible Origination teams for Lehman Brothers in Hong Kong and New York. She holds a BA (magna cum laude) in economics from Amherst College and an MBA from Columbia Business School. Location: New York

India’s New Look: Paving Roads to Efficiency and Investment

Transportation Upgrades are Widespread

Cutting Red Tape for Business

Digital Infrastructure Is Expanding Rapidly

India’s Golden Opportunity Fosters Investment Potential

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