Menu Our services in the selected location:
  • No services available for your region.
Select Location:
Select Location
    Remember my selection
    Your browser is out of date.

    Explore how we can help you

    Talk to Us
    February 2018 | GSAM Connect

    EM Viewpoints – India: The World’s Growth Powerhouse

    Our Emerging Markets Equity team returned with insights from the GSAM India tour, taking 21 clients to meet with India’s most senior leaders of corporations and the political establishment. Our excitement in the investment opportunity has been invigorated as we observed in detail three key drivers (listed below) that may leave India poised to potentially double in GDP to $6 trillion by 2027 to become the world’s third largest economy.

    Strong domestically-driven growth profile

    India today is where China was in 2000, with nearly identical share of the total global output and similar GDP per capita – and we believe the latter is expected to double by 2027 in India. The scale and youth of India’s demographic profile—with 65% of its 1.2 billion population under the age of 35—are without parallel, especially as the consumer stands at an inflection point with the bottom 50% of the population by income accounting for less than 10% of the country’s total consumption. India will need to create at least 15 million jobs per year to keep up with demographic trends. To put this number in context, the US added 2 million jobs last year in one of the strongest years for the labor market since the turn of the turn of the decade.

    Reform-minded government

    Prime Minister Narendra Modi’s government is working with the private sector to build the physical and digital infrastructure to better transport goods, information and India’s 1.2 billion people, while smoothing the friction points to allow for greater ease of living and of doing business. As we met with top ranking policymakers—from the Finance Minister to the US Ambassador—we were encouraged by the vision and execution of the administration as “good politics means good business,” a phrase reiterated by many private and public sector officials. India now stands to reap the gains of structural reforms from Good and Services Tax (GST) to demonetization (India’s government removed the 500 and 1000 rupee bank notes from legal currency in November 2016) that had previously taken a toll on growth as they forced the economy to modernize and formalize.

    Profitable and diverse corporate universe

    India’s market structure appears to be particularly compelling due to the number and diversity of publicly-listed companies that offer access to the rise of the consumer in India (especially in the middle class), while having a much smaller share of state-owned enterprises than for example China. We prefer small and midcaps, many which exist outside of the benchmark index, particularly in sectors where India is trying to solve domestic challenges like employing, educating, and caring for the 1 million new workers that come into the economy each month.

                         
     

    Economic growth

    India’s per capita income is expected to grow 2x by 2027, from $1,868 currently to $4,135.

    		      

    Workforce

    150 million Indians are coming into the workforce in the next 10 years and India already represents 18% of the global workforce.

    		      

    Reforms

    India jumped 42 spots in the World Bank’s Ease of Doing Business Index since Modi’s election, but its rank at #100 leaves room for improvement. 

    		  
                         
                         
     

    Formalization

    As GST helped formalize the economy, India saw a 50% increase in the # of enterprises registered for tax last year.

    		      

    Urbanization

    2 of 3 Indians live in rural areas where monthly per capita spending is $16/month vs. $29 for India at large (China is 4x greater).

    		      

    Industrialization 

    Despite employing half
    of India’s population,
    the agriculture sector
    only produces 17% of
    India’s GDP. 

    		  

    GSAM Connect
    Stay posted on the latest market developments and key themes for your portfolios and practices.
    Get Connected

    ABOUT THE AUTHOR

    Katherine Bordlemay

    Katherine Bordlemay

    Vice President, Fundamental Equity, Client portfolio Manager,, GSAM
    Luke Barrs

    Luke Barrs

    Emerging Markets Specialist, Fundamental Equity Client Portfolio Management,, Goldman Sachs Asset Management

    RELATED INSIGHTS

    January 2018 | GSAM Connect
    2018 EM Equity Outlook

    In 2017, Emerging Market Equities have returned +37%, significantly outperforming US and Developed Market Equities, which returned +21% and +22% respectively – this marks the strongest absolute and relative performance in eight years. Looking to 2018, we believe Emerging Markets could be in the early stages of a multi-year recovery underpinned by 1) growth acceleration 2) earnings revival and 3) attractive valuations.

    November 2017 | GSAM Connect
    EM Viewpoints: State-Owned Enterprises (SOEs): Caution or Conviction?

    SOEs: aligned with the state, not always with investors
    As the name suggests, state-owned enterprises are entities set up by the government that allows them to partake in commercial activities on their behalf. We have long cautioned around the challenge of investing in SOEs, a group that represents over a quarter of the investable universe in emerging markets. This is because there is a heightened risk of misalignment of interests since the government is the majority owner and they may have objectives other than return maximization. As such, we believe capital allocation and investment decisions are not always in investors’ long-term interests. Accordingly, the chart below highlights that Non-SOEs have outperformed SOEs historically over various time horizons.