I have been visiting India as a portfolio manager for ten years. But on my last trip earlier this year I found that something very significant had changed from all the previous visits that I have made: now everyone wanted to talk about investing in India.
At the recent Merrill Lynch India conference, some sixty Indian companies made presentations to over one hundred investment managers from around the world. Two other India investment conferences have 'also been held in the past few weeks; one by CLSA in India, and another by Goldman Sachs in New York.
Rather than the usual suspects, almost half of the greatly increased number of attendees at both the India-based conferences were visiting India for the first time, which means that most will have had few if any investments in India. Even Stephen Roach, the Morgan Stanley chief economist, has also just visited India for the first time, in contrast to--he admits--his (and most of the rest of the world's) China-centric view of Asia, including twenty-five visits to the Middle Kingdom since 1997. He writes, "Quite simply, I was blown away by what I saw on my first trip to India."
We have run the India Capital Fund since 1994 and while we have always been excited about India, we have had more to say about potential, rather than achievement, as far as the second-most-populous country in the world is concerned. That is different now.
The largest infrastructure build-out in the world today is taking place in India. In addition, the world's fastest cell phone growth rate and the second-fastest GDP growth, at around 9 percent, are also found in India.
Since 1980, India has had the second-fastest growing GDP in the world after China. During the global recession of 2001, GDP growth in India and China was hardly affected and combined represented almost 50 percent of total global GDP growth, and we would also assume that Indian numbers are more accurate than Chinese ones. Indian per capita GDP has more than doubled in the past twelve years and the rate of increase is rising.
THE CHANGE J-CURVE
To put things in a general global perspective, it is hugely sobering to remember that it has only been possible to invest in the stock markets of China, Russia, and India for around the past fifteen years or so. Although the Bombay Stock Exchange is the second oldest in the world it only began to open up in 1991.
In that time scale, plus or minus five years, three of the biggest economies in the world have converted themselves from communism/socialism to capitalism, India included. The rest of the world is only now starting to digest both the fact and the effects of this change. And the effects on labor and capital markets and in the political arena will be huge, dislocating, and positive, as trade expands and wealth is created.
India is a "real" democracy (meaning there are reasonably fair elections where governments can change without major bloodshed), and as in any political state, leaders must lead to achieve positive change; this is not a universal condition. In India, it required a second generation of reforming figures to make a difference. The most important of these is Arun Shourie, the minister for disinvestment, as privatization is known in India.
Mr. Shourie has a Ph.D. in economics from Syracuse University and was a World Bank economist and crusading "rightwing" journalist before becoming a major force for change and liberalization in the current government. Results, not debate, are his ambition; famously saying, "When it doesn't work to go in like a rhino, be like a swarm of bees." Mr. Shourie's ambition is for more schools, more roads, more airports, and more opportunity, paid for initially by privatization receipts.
British Prime Minister Margaret Thatcher invented mass privatization, a phenomenon that is not very visible in the political consciousness of the United States, …