Mumbai, the financial capital of India, has seen many new faces over the past year. The bosses of global banks have been parading around, visiting their stock exchanges, buying property and hiring new staff.
A post-pandemic boom has lifted the value of India’s stock market to around $5 trillion, putting it on par with Hong Kong’s. India’s economy is among the fastest growing in the world. Wall Street can no longer ignore India.
The entry point is Mumbai, a port city of 26 million people, including its suburbs. Mumbai has undergone a makeover: suspension bridges span its seaways as well as its infamous slums, and new metro lines have been carved beneath its Art Deco and Indo-Saracenic facades and its noisy commuter railways.
Mumbai has been India’s commercial hub for eight decades, but was relatively untouched by global finance until the last two years.
Now American pension managers, Gulf and Singapore sovereign wealth funds, Japanese banks and private equity firms are clamoring for a share of India’s growth. Veterans and rookies alike can recite the reasons why India’s rise is inevitable.
Making money will be easier said than done, especially since Indian investors got there first. Compared to the current earnings of Indian companies, their share prices are high.
Foreign investors still have to contribute their full financial weight. Mumbai markets were jittery in May as Narendra Modi, the pro-business prime minister, fought for re-election. He is expected to win, but the uncertainties have made far-flung investors cautious.
Despite all the speculative money pouring into Mumbai’s markets, India remains a difficult place for foreign companies, making direct investment risky. Spending demand from India’s potentially vast consumer base has been below expectations: the top of the income ladder is spending more than ever, while hundreds of millions of people are stuck near the bottom. base.
The simple reason for investor enthusiasm is India’s economy, which has strengths that other large emerging economies currently lack. Foreign clients, said an Indian bank executive, “gravitate towards India because it is showing reliable growth, its currency is stable and it is showing fiscal discipline.” He spoke on condition of anonymity because he works closely with the government.
If India looks better to global investors, China and Russia look worse. China’s miraculous growth engine is faltering, after three decades at full throttle, and threats of trade wars are becoming routine. And Russia was effectively crossed off some lists of viable emerging economies after its 2022 invasion of Ukraine and the sanctions imposed on it by the United States, Europe and their allies.
That’s one reason, the banker said, why investors pressured Wall Street to make it easier to bet large sums of money in India.
The MSCI, an influential emerging markets stock index started by Morgan Stanley, has increased India’s weighting to more than 18 percent, from 8 percent in 2020, while reducing China’s representation. It’s not just about stocks: In June, JPMorgan Chase will add Indian government bonds to its emerging markets index. Both changes mean that mutual funds are buying more Indian financial assets.
Aashish Agarwal, managing director in charge of India at investment bank Jefferies, has been doing business in Mumbai for over 20 years. He said the argument for investing in India was a no-brainer: Indian stocks are outperforming those of China. Indian markets also draw on a broader range of companies than many other emerging economies, he said.
“You can’t think of Korea without Samsung, or Latin America without basic products,” Agarwal said. “India, as an index, is possibly the most balanced that can be found outside the United States”
The outlook seems equally optimistic for Kevin Carter of Lafayette, California. He founded an investment firm, called EMQQ Global, that sells exchange-traded funds, making it easier for everyday people to invest in emerging markets. The value of a fund that focuses on India’s internet and e-commerce sectors has grown nearly 40 percent in the past year.
India, he said, has the ingredients of what has historically helped emerging markets succeed: a large population, especially young people, and economic growth that is causing people to spend more.
With 1.4 billion people and counting, India is the most populous country in the world. Most Indians are of working age or will soon be, unlike residents of Europe or East Asia. India’s economic growth rate, which is around 7 percent, compares favorably with a global average of 3.2.
For some investors, there is an air of déjà vu. They remember a time almost 15 years ago when India was last thought poised to overtake China’s economic growth rate.
Those who believed India’s hype ended up disappointed. From 2008 to 2020, China’s per capita income quadrupled, while India’s grew 2.5 times. That left India poor compared to the rest of the world.
The latest calculation by the International Monetary Fund places India in 138th place in the national income ranking, between the Republic of the Congo and Nicaragua. China was ranked 65. But India is moving forward, much faster than China.
Along the way, India is spending big on public infrastructure, a hallmark of Modi’s policies in his 10 years in office.
In Mumbai itself, there were only three skyscrapers in 2008; By the end of this year hundreds will have sprouted. The city’s center of gravity has shifted from the city center to the purpose-built Bandra Kurla Complex, or BKC, a concrete spaghetti extension in the city centre. The One BKC tower, home to Bank of America and Swiss insurance giant Swiss Re, as well as many others, was purchased by Blackstone, the world’s largest private equity group, for $300 million in 2019.
Mumbai, of course, is also home to the stock market, which has attracted the savings of India’s rapidly expanding investment class. Banks have made it easier for middle-income Indian families to invest directly. So many novice investors have lost money in the risky trading of derivatives (investment securities linked to other securities) that regulators want to rein them in.
A tougher test for India’s economy will be whether it can attract more foreign direct investment – the purchase of entire chunks of private businesses by investors or companies.
Nivruti Rai, CEO of Invest India, a joint venture between the Commerce Ministry and private chambers of commerce, is trying to smooth the way. Ms. Rai is well positioned for the job, having spent nearly 30 years at Intel, spanning India and the United States.
“I am a woman, I come from technology, from a multinational,” she said, “and I live in India. “All this sends a message.”
More longer-term foreign financing would help strengthen and stabilize the Indian rupee. Investors who make such financial commitments also tend to bring technical expertise.
“We may lack capital and, in some places, we may lack technology,” he said.
Ms. Rai has an ambitious goal: $100 billion in foreign direct investment. That’s higher than what India got in 2021, which was a record, and much higher than it is now. Receipts fell 16.8 percent last year, to just over $28 billion. Foreign investment fell in many places around the world in 2023, but India, like China, was especially hard hit. However, Ms Rai foresees a new cycle of investment activity focused on Indian health technology, clean energy and artificial intelligence companies.
Modi has promised to grow India’s economy tenfold by 2047, in time for the centenary of its independence. To get there, Rai noted, the country will need an even faster rate of growth, and that means more of “those investors we’re trying to attract.”