Our thoughts on Indian growth companies, including why we sold HDFC Bank and bought Titan.
As with any investment your capital is at risk
In the bustling streets of Mumbai, ancient traditions meet modern aspirations, spurring a remarkable transformation in culture, technological advances, and economic empowerment. Although Long Term Global Growth remains resolutely bottom-up in our approach towards identifying potential opportunities for your portfolio, it is hard not to envy India as a fertile hunting ground for future outliers. The country boasts the largest population in the world; 70 per cent of the population is under 40; India's retail market is one of the fastest growing in Asia – tipped to increase by 50 per cent to over $1tn in just a few years – and ecommerce penetration sits at a lowly 5 per cent of the population today.
Granted, LTGG saw the potential of India's compelling growth story over a decade ago with a holding in HDFC in 2010, recognising its position as India's leading residential mortgage provider. Our thesis centred on rising income levels and expanding middle-class housing affordability. Since the first purchase, the thesis has played out admirably with a c.10x holding period return for our clients. However, due to market opening restrictions, not all LTGG clients benefitted from the exemplary management team headed by Keki Mistry.
© Getty Images/EyeEm
In July 2023, when HDFC merged with its banking counterpart HDFC Bank, the availability of an American depositary receipt (ADR) meant the remainder of our clients could gain exposure to this meaningful diversifier – the only bank in the portfolio at the time.
On first assessment, there was a lot to like about the merger. It seemed a compelling route to accelerate both companies' growth while strengthening their competitive positions. The less rosy consequence was enforced leadership changes, which we knew would eventually happen. But it was nonetheless challenging to view management change as anything other than a negative given our focus on long-term alignment and business culture – epitomised by Keki's exceptional track record over the last decade. That said, we were minded to be patient.
A few months after the merger was announced in 2022, the LTGG decision-making team met management for an update and again just before the merger concluded in June 2023. On that occasion, Keki and new CEO, Sashi Jagdishan, kindly visited us in Edinburgh, highlighting the strength of our long-term relationship. At the start of 2024, we spent three hours with management at HDFC's Mumbai headquarters during an investment trip, and we also got to talk with Keki again in his new capacity as non-executive director on the board.
Our long-term focus initially meant we were willing to look through some of the shorter-term headwinds to growth and profitability caused by the merger. However, in the meantime, our conviction in the company's cultural advantage had significantly diminished through management changes and demotions. As a result, we sold your HDFC Bank holding for these reasons towards the end of 2024.
Somewhat serendipitously, the trip to India opened our eyes to several other exciting opportunities, specifically Titan. The company, which manufactures and sells jewellery and other accessories, exemplifies the perfect intersection of tradition and transformation. Picture walking into a Tanishq store (one of their core brands alongside Caratlane and Zoya), where a young bride-to-be uses a revolutionary "caratmeter" to verify the purity of her family heirloom jewellery. This innovative approach to transparency has fundamentally changed how Indians purchase jewellery, establishing trust in a market historically plagued by opacity.
The story of Titan is deeply intertwined with India's cultural fabric. The opportunity is immense, with the domestic jewellery market about 30 per cent larger than the US despite India having half of America's GDP. This isn't merely about luxury – it's about tradition, with over one billion Hindus celebrating Diwali yearly and jewellery being the customary gift.
Moreover, wedding jewellery drives 60 per cent of domestic demand in the Indian market. Rising incomes, changing consumer preferences, and increasing regulatory scrutiny are tilting the market towards formalised players like Titan. Their well-crafted franchise model ensures scalable growth, with plans for substantial store expansion domestically and internationally, which could translate into a healthy 20 per cent revenue compound annual growth rate over the next decade.
In addition, we continue to explore other promising opportunities in India. Trent Limited is reshaping India's apparel market with a differentiated business model. Its structural growth potential echoes that of an early-stage Inditex – held in LTGG for a decade until 2020. In healthcare, private hospital chains like Max Health and Medanta are addressing India's acute shortage of quality healthcare services, presenting a ripe sector for long-term expansion. Meanwhile, Jio Financial Services, leveraging its parent company's unparalleled distribution network, aims to democratise access to financial services, targeting middle- and lower-income segments.
Access to local markets becomes increasingly crucial for investors seeking exposure to India's growth story. While some companies offer ADR alternatives, the most compelling opportunities often require direct market access. The evolution of our Indian holdings – from HDFC Bank to Titan – demonstrates the dynamism of the market and the importance of maintaining a long-term perspective.
As India continues its economic transformation, it is poised to account for one-fifth of global growth over the next decade. This demographic dividend, combined with the increasing formalisation of the economy and rising consumer sophistication, creates a perfect storm of opportunity for patient, long-term investors willing to participate in India's remarkable journey from tradition to transformation.
| 2020 | 2021 | 2022 | 2023 | 2024 | |
| LTGG Composite | 102.9 | 25.9 | -48.8 | 19.9 | 39.1 |
| MSCI ACWI | 11.0 | 28.0 | -20.3 | 21.4 | 32.4 |
| 1 year | 5 years | 10 years | Since inception* | |
| LTGG Composite | 39.1 | 16.9 | 15.0 | 12.2 |
| MSCI ACWI | 32.3 | 12.7 | 9.9 | 8.6 |
*Inception date 29 February 2004.
Source: Baillie Gifford & Co and MSCI. US Dollars.
Past performance is not a guide to future results. Changes in the investment strategies, contributions or withdrawals may materially alter the performance and results of the portfolio. Net of fees returns have been calculated by reducing the gross return by the highest annual management fee for the composite. All investment strategies have the potential for profit and loss.
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