India presents huge investment opportunity

The UK’s General Election on 4 July is widely predicted to be a landslide for Labour with polls suggesting a "wipeout" for the Conservatives, but as the surprise result in India’s contest last month proves, nothing is certain.

In a year that sees more than half of the world’s population go to the polls, India provided one of the shock results with incumbent prime minister Narendra Modi, who was widely tipped to achieve a significant majority, forced into coalition with Congress Party-led INDIA.

Among the reasons for a Modi dip in popularity are rising unemployment; escalating prices and growing in equality.

India’s GDP grew by 8 per cent in the last fiscal year, but private consumption and investment are much lower and national unemployment is 8 per cent, rising to 17 percent in cities.

However, there are those that see India as a hugely promising investment opportunity, particularly in venture capital.

This week we bring you an opinion piece from Archana Jahagirdar, Founder, Rukam Capital which invests in early-stage consumer products and services companies, who says India’s economic prospects remain "extremely robust".

Behind Jahagirdar’s optimism is her belief India that India will be the fastest growing major economy in the world this year at 6.8 per cent, and to continue at 6.5 per cent in 2025, led largely by a digital transformation.

Between 2018 and 2023 the number of internet users in the country increased from 398 million to 907 million, growing from 29 per cent of the total population to 64 per cent. There are now nearly a billion mobile phone users in India, more than two-thirds of the total population.

At the same time, high-innovation sectors such as BioTech, Speciality Chemicals, HealthTech, and DeepTech are adding growth.

Jahagirdar’s says for venture capitalists, tech startups offer an opportunity to tap into that growth.

"India now has the third largest startup ecosystem in the world. There was a period of extraordinary growth between 2020 and 2022, when the number of unicorns trebled to over 100 and the number of startups increased by over 50 per cent to 57,000 with a combined valuation of over USD450 billion," Jahagirdar says.

But for Jahagirdar’s hope to become reality, the newly formed coalition will need to support the VC potential with effective policy. Modi has been positive about VC in the past, and he will now need to work with political opponents to keep momentum alive.

Elsewhere we bring you news that investors continue to pull money out of hedge funds. The sector, which has outperformed traditional stocks and bonds, endured major outflows in April with Preqin reporting that "equity hedge funds have taken the brunt of those losses", experiencing USD6.7 billion in net outflows in the first quarter.

Preqin states: "Even as these numbers pale in comparison to the USD57.1 billion that was redeemed between the fourth quarter of 2021 and the third quarter of 2022, it certainly points to waning interest in the broader strategy."

This marked the fourth consecutive quarter of net redemptions, totalling an estimated USD28 billion of capital moving elsewhere.

And as inflation rates continue to fall and there is a chance interest rates will come down with them, the picture gets bleaker for hedge funds which typically generate absolute returns that are approximately half (52 per cent) of those available to equity investors when inflation is low. In periods of high inflation meanwhile, hedge funds have materially exceeded equity market returns.

We shall wait and see what broader economic trends mean for the sector in the coming months.

Gill Wadsworth, Editor, Institutional Asset Manager

For live updates please follow us on Twitter and LinkedIn.