Can India compete with China for investment?

Nicholas Earl, 23/10/2020

India has distinct advantages for investors over China and will continue to provide exciting opportunities as its economy recovers from the effects of the global pandemic, according to David Cornell, chief investment officer for Ocean Dial Asset Management.

Speaking exclusively to Fundeye, Mr Cornell outlined the in-built, long-term beneficial aspects of investing in India, irrespective of the current financial climate. He noted the relative youth of its population compared to China, with 50 percent of India’s 1.3 billion people under the age of 25 years old, while the country’s established, democratic system meant it was significantly more open to investment and less inhibited by regulation and stringent business rules especially due to the extensive economic reforms implemented by serving Prime Minister Narenda Modi.

Meanwhile, present day developments ensured India was in a prime position for investment, as the economy was shifting in its consumption habits.  With GDP per capita currently at $2500 per head, India was set for a huge upswing in activity, with the average percentage of income spent on food and essentials decreasing as the salaries and earnings of India’s burgeoning middle class increased. Instead, increased activity and spending would be focused on material goods and lifestyle opportunities. Or put into investment sectors, consumer discretionary, an area which Mr Cornell and his team are focused.

Although the country remains considerably behind China’s GDP per head, which is roughly $6000, it was now on the cusp of a marked upswing in economic activity that could offer new possibilities for investors.

India’s growing technological manufacturing base was in Mr Cornell’s view, very appealing, as it positioned the country as an emerging markets alternative to China. He points to the construction of Samsung Xiaomi’s manufacturing base in the country and it may surprise some to hear that India has become a net exporter of mobile phones for the first time this year.

Compounding the India Inc idea, Mr Cornell outlined its attractive tax rates that could be as low as 17 percent for companies building factories in India, while its labour costs were around a third of China. These moves have been reflected positively in the World Bank’s analysis with its ease of doing business ranking moving from outside the top 100 in 2015 to 63 in the present day.

He also observed that Chinas shift towards incentivising domestic companies meant that it was increasingly difficult to invest into the region, in contrast to India. Especially as India was showing signs of engagement with the advancements of technology and its opportunities, with its largest company by market capitalisation, Reliance industries, entering into significant investment agreements with Facebook, Google and Microsoft Qualcomm, totalling $20 billion.

Mr Cornell explained: “Americans can't do business in China and the Chinese can't do business in America. They are fighting each other over everything, whether it's Facebook, whether it's diesel, or whether it's Xiaomi. All the global companies that are looking to disrupt the digital revolution are looking to India, and they can compete. From that perspective it's very exciting.”

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