Spotlight on India: Changing Demographics and Political Stability

Spotlight on India: Changing Demographics and Political Stability

Adam Sparkman: Welcome to this quarter’s emerging markets country spotlight. Today we are joined by Thornburg portfolio manager Josh Rubin, who will shed light on the thriving market of Indian equities. India is known for its vibrant economy, diverse sectors and robust growth potential. The country recently surpassed China as the most populous in the world, making it an attractive destination for investors looking to capitalize on its dynamic market. In recent years, India has witnessed a transformative wave of economic reforms, coupled with a thriving entrepreneurial spirit, paving the way for interesting investment prospects.

Indian equities offer a wide range of sectors that present compelling opportunities for investors seeking long term growth from technology and consumer goods to health care and housing. Let’s dive in and explore the world of investment opportunities in India.

Josh, I know that you were in India during the fourth quarter. India is obviously a significant piece of the emerging market universe. In fact, just last month I saw a survey where 22 global public funds actually ranked it the most attractive current investment opportunity in emerging markets. When I think about India, I think one of the most exciting things and what makes it so attractive are the positive demographic trends.

But one trend, or disparity, that of the wealthier urban cities which are growing at a pretty fast clip compared to the poor rural areas which I know have struggled a bit coming out of COVID. How do you think about the contrast between those two groups and how does it factor into your investment thinking?

Josh Rubin: Demographics are definitely an important starting point for any Indian equity investor. But we think it’s important to think about the construct today compared to what it will look like in the future. So today, the population looks like a pyramid at the lowest end. The greatest part of the population is really around the poverty level, earning enough to eat, but not to do much more. In a decade we think that pyramid will turn and look much more like a diamond. So, the middle-income levels should be about 50% of the population a decade from now rather than 25% today. The other part of it, we certainly know population growth, but it’s not just the absolute number of people in the country. A lot of it has to do with household growth.

So historically, India has been a country of multigenerational households where the grandparents, the parents, the kids lived together. The household might be eight or ten people. And with rising incomes, you begin to see just single-family units living together. So, you actually get certain aspects of consumption that grow a lot faster than population, both because of income growth and because you have the increasing households as the households get smaller.

Adam Sparkman: So, Josh, the Modi led government, which actually faces general election here in just a few months, has done a lot to try and bolster the Indian economy over the past several years. But from your view, what is there still left to do and what are some of your general thoughts around the upcoming election?

Josh Rubin: The spring elections are very important for both capital markets and corporate confidence. For the next five years, we would be entering the third term for Modi, where the first term was really about learning how to govern. That coalition had never governed before the second term was more about solidifying the policies they’ve been putting in place.

And I think the third term would be about finalizing the muscle memory of the whole economy for how to operate going forward. What we’ve seen over time are improvements that reduce friction for interstate commerce, and that’s really important in a country as big as India, along with tax collection, which reduces the informal economy, the gray market economy, and strengthens the formal economy along with land use policies that make development easier.

Just like the government in the first term, was really figuring out how to govern. During the second term, corporates or individuals were really learning how to change their lives or adapt their lives to the new policies. And so, stability in the third term can really make all of those a permanent part of the Indian economic structure.

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