India’s middle-class should rebound as the domestic economy recovers from the deadly second wave of Covid-19 cases, suggests Ramesh Mantri, adviser to the Ashoka India Equity (AIE) Investment Trust.
Mr Mantri believes that key investment themes in India, such as its burgeoning technology sector, rapid urbanisation and free market reforms, will continue to appeal to investors following the pandemic. These are themes reliant on a resilient middle class, which he believed would regroup.
He based this outlook on increased consumption patterns this summer.
Speaking to Fundeye, Mr Mantri said: “The interest in mobile phone manufacturing is very strong, and it's also now expanding to IP hardware manufacturing, where allocations have already been made. There has been very strong local and global interest to participate in manufacturing in India.”
In particular, he noted that even cyclical sectors such as real estate, which experienced strong rebounds in July, were experiencing growth. Rather than being eradicated by the pandemic, the pivot towards real estate investing was only interrupted by the successive waves of Covid-19. This reflected the resiliency of the middle class.
The investment adviser explained: “We are seeing in the month of July rapid economic normalisation. This is the case even in highly discretionary sectors like real estate, those sectors are seeing very strong rebounds. They had seen very strong rebounds in the second half of last year, from October to March last year before the second wave arrived on the scene. So, I think this the loss of the middle class will rebound very quickly.”
Mr Mantri also noted that middle-class earners were on the margins between both income tiers, and would be able to ride the wave of an economic recovery. They often fell into to the low-income bracket from having to spend savings on issues like healthcare during the pandemic.
This was especially the case because multiple key sectors were now short of people and would seek to lure new employees, such as the country’s extensive IT sector.
Acknowledging IT as a classic source of employment for the country’s middle class, he said: “There's a joke going on in IT services companies that trespassers will be hired.”
Fundeye asked Mr Mantri about the possible difficulties facing India’s middle income earners following comments from Ocean Dial Asset Management’s chief investment officer, David Cornell. He felt that the effects of the second wave, could result in the country’s middle-class pivoting towards saving money, particularly for healthcare issues.
Mr Mantri believed that the outcome of the pandemic, when it came to consumer spending, would be more ambiguous.
He said: “On consumer behaviour and how that changes, it's very difficult to understand how consumers behaviours will change. It’s very easy to say they'll save more money, they'll spend more on health, but we are not behavioural psychologists or sociologists. The world is not so easily predictable”
Mr Mantri felt there could even be benefitting shifts such as more jobs in towns and urbanisation being a more equitable situation, rather than focused on key cities.
He added: “It is likely that people will prioritise their health a lot more, but other trends are a lot easier to identify. One is hybrid-work environments, as you no no longer need to live in large congested cities, and a good number of jobs will get create beyond just cities.”
His optimistic outlook on India’s middle-income citizens was also driven by the continuation of the BJP’s economic agenda. Since the pandemic, the government has initiated labour reforms, mining reforms, and a large-scale investment disinvestment of public owned companies. While these are yet to be implemented, the intention is clear, and follows reforms to the property and argicultural sectors.
He said: “What we hear from entrepreneurs is that the government has been very proactive of late in supporting investments in India, particularly on the manufacturing side. This has included very proactive measures by the government, which is unlike the typical government that operates in India.”
From an international perspective, he also believes India could benefit from strong anti-China sentiment, as developed economies aim to diversify their supply chains and lessen their dependence on China post-pandemic. He also thought that India would attract international investors due to multiple key pull factors, that would make it the “manufacturing hub of the world” such as its low-cost labour, large domestic market, and development of high-qualiy infrastrucutre, all of which would be fuelled by middle class consumption.
He concluded: “I don't think the Indian story changes adversely because the pandemic. I would say it changes positively because of the pandemic.”
