Prime Minister Modi celebrated his birthday on September 17 by re-introducing a group of cheetahs to Kuno National Park, an outsized wildlife refuge in central India. The Asiatic cheetah, a subspecies of the African cheetah, once roamed freely across the nation. By 1952, the animal was declared extinct in India. One little-known fact: the word cheetah is derived from the Hindi word for “spotted.”
The cheetah—with its uncanny ability to sprint at high speeds—may be a useful symbol of Indian economic growth, at least for the time being. The nation delivered 13.5% growth in the second quarter, reflecting in part a rebound from pandemic lows in 2021. The Indian press has festooned its business news with the data announcement because it catapulted India beyond the UK in terms of absolute size. India now ranks as the world’s fifth largest economy based on nominal gross domestic product.
Cheetahs are not endurance cats. They may only need a few seconds to accelerate to peak momentum, but they cannot sustain that speed for more than a few hundred meters. Similarly, the Indian economy is likely to moderate at about 7% growth for the year. The danger is that higher interest rates, uncertain consumer demand, and global political challenges will undermine activity. Still, by international standards, growth will remain impressive.
The outlook for India should be affirming for cross-border investors in the Indian market. We discount the boogeyman of higher interest rates—usually a first-round objection by portfolio managers—given corporate de-leveraging over recent years. Our recommendation is to maneuver enthusiastically, but skillfully.
Public Equities. The BSE Sensex Index has already discounted growth expectations; it had a buoyant run in July and August. One reason there was a weak response to recently-released data is the dominance of the internationally-oriented tech sector. Global caution weighs heavy on domestic buzz, suggesting investors focus on narrow or sector-specific opportunities.
Real Estate. Spotlighting commercial property during a period of rising interest rates may be gutsy by traditional standards, but there are strong fundamentals at play in India that supersede macroeconomic concerns. For starters, return-to-work standards are now prominent. So-called absorption rates, a measure of real-estate demand, are among the highest in a decade nationwide.
Venture Capital. Despite criticism about duplicative business models and lofty valuations in this broad market segment, we are compelled by opportunities with early-stage Indian startups. International funds are buying shares in late-stage ventures, ignoring smaller firms. That bias toward pre-IPO activity creates a two-tier asset class.
Early-stage Indian startups are of course unknown on the international stage. Unlike their late-stage brethren, these firms have not had the benefit of generous funding rounds to sustain costs-be-damned operations. That lean expense profile means that sales gains have a muscular impact on the bottom line. We expect to see impressive valuation restatements among these firms over the cycle ahead.
More generally, there may be pent-up demand for Indian deals, considering the sheer size of the domestic market. Cross-border investors were cautious in the early years of the Modi government and the subsequent pandemic. The administration rolled out a goods and services tax in July 2017; it withdrew large bills from circulation in November 2016. Both fiscal steps had a negative short-term impact on economic activity. Budding optimism was then shredded by the first Indian lockdown in March 2020.
Global investors may be further encouraged by a comparatively stable political backdrop. There are no explicit term limits for the prime minister in India. Modi is likely to continue to serve, provided his BJP Party wins the lower house election in 2024. Anecdotes suggest that he may be pushed out in 2025 after he turns 75. That link between age and office, however, may prove tenuous. The strongman-in-office scenario implies an ongoing pro-business backdrop since Modi relies on an urban, high-wage support base.
We admit there are limits to the cheetah metaphor, with application best suited for a snapshot of the economy, not a panoramic view of business. The apex predator is more-or-less a one-dimensional animal built for speed. Cheetahs are not particularly skilled at climbing or swimming. And their lifespan is surprisingly short among big cats at eight-to-ten years. Indian commercial opportunities are far more nuanced, if not durable. ■
Our Vantage Point: Indian growth should be alluring for global investors at this time. Robust economic momentum creates a range of opportunities. We are especially drawn to early-stage Indian startups, given their lean, pandemic-induced operating profiles.
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