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Recent commentary on India has been dominated by the macro risk from higher oil prices and how this energy-importing Achilles’ heel could hurt the country’s current account. This threat must be balanced with bottom-up analysis. That can be difficult of course: The recent market environment undoubtedly challenges one’s ability to maintain a resolutely long-term outlook.
The interesting question about India over the past decade is about what change has made the biggest difference. To us, there’s no contest: the explosive growth in mobile data use. From roadside stalls accepting digital payments to taxi drivers, glued to their small screens while waiting in the shade, smartphones are everywhere. The profusion of great entrepreneurial companies in the wake of this change matters more than macroeconomic ups and downs.
The spur for this new tech-enabled wave was the rollout of the country’s fourth generation (4G) cellular network in the mid-2010s. Reliance, then best known as an oil refining business, spotted the potential of connecting the masses and invested $40bn in building and launching its Jio network in 2016.
As Reliance shareholders, we backed the move. The network created millions of potential consumers, almost overnight brought the internet to the masses, catalysing an unprecedented wave of Indian innovation that has given the country its current 54 ‘unicorns’ – companies with a valuation above $1bn – more than any other country apart from the US and China.
Thus ‘old India’ became midwife to the ‘new’. Industrial stalwarts such as Reliance, car maker Tata Motors and mining giant Vedanta still present substantial growth opportunities. Reliance has moved into retail and media, and Tata is the leading player in country’s nascent electric vehicle market. Nevertheless, it’s the plethora of new generation technology companies that excites us most and provides a counterweight to current concerns about the effect of higher energy prices on a big energy importer such as India.
With our internal tracking predicting that between $200bn and $300bn of tech-based private companies are likely to list on India’s stock market in the next two or three years, we see a vast increase in opportunities. Of the many more unicorns we expect to emerge, the majority will come from the tech space.
It helps that India’s Ministry of Electronics and Information Technology has made access to online products and services easier through Aadhaar, the world’s largest biometric database. Meaning ‘foundation’ in Hindi, Aadhaar is a 12-digit ID number, linked to digital photographs, fingerprints and iris scans which allows Indians to pay for goods and services by mobile phone.
Opening a bank account now takes as little as 10 minutes thanks to Aadhaar. I’m somewhat envious when I contrast that with the six weeks it took me to open an account in the UK to take out a new mortgage.
Tax reforms also helped India’s tech sector to grow. Previously, prohibitively high interstate taxes meant companies rarely expanded beyond state lines. In 2017 the national Goods and Services Tax (GST) simplified the regime, allowing regional businesses to flourish into national players.
Building relationships with founders and their management teams has been at the core of our endeavours in the country. For example, through our relationship with Info Edge (one of the country’s leading internet companies), we met many of the tech entrepreneurs we’ve since backed. Working with private equity firms such as Sequoia Capital’s Indian operations also broadened our reach.
Relationships were also key to our investment in food delivery service Zomato. We met founder Deepinder Goyal for the first time back in 2012 when the company was the country’s leading restaurant review site. It was clear from our discussions that Zomato had far greater ambitions and would use its valuable user-generated content to build something that outgrew its existing business by an order of magnitude.
Fast forward to today and our investment has been richly rewarded. Zomato transformed itself into the country’s largest food delivery company with 16 million users by the end of September 2022, a market share of around 40 per cent and backing from companies that include Alibaba and Uber.
Technology also underpins Star Health Insurance’s thriving business. India’s largest private health insurer is an incredibly well-run company that uses internet connectivity to distribute its health and travel insurance, along with online medical consultations, giving it about 30 per cent of the market in individual health insurance. Scale and distribution of this sort presents huge barriers for competitors. Given the low penetration of health insurance in the country, this is a company that could grow for decades.
The growth of India’s middle class is crucial to our thinking. About 70 per cent of India’s population is under 40. India’s retail market is one of the fastest growing in Asia and is tipped to go from about $800bn today to $1.2tn by 2026. Ecommerce penetration sits at only about 5 per cent of the population today. In a decade it could reach half the population.
Not only is the retail market growing by 10 per cent a year, but the online market could increase tenfold over the next decade. Those changes create big opportunities for tech businesses and their innovative founders. Should these expectations be realised, hundreds of millions of smartphone-fixated consumers will soon have a lot more content and services to keep them busy. The stage is set for the country’s entrepreneurs to complete the transition to the new India.
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