India: a future leader in e-commerce and tech platforms?
Kevin Carter, manager of FMQQ Next Frontier Internet & Ecommerce ESG-S UCITS ETF (FMQQ)
You cannot talk about the investment case for India without first mentioning the country’s rapid economic growth. India’s economy grew at an average rate of 7.7% in the past two decades. 1
The country’s economy is also rapidly recovering from the pandemic-induced contraction. India’s economy grew by 8.4 percent year-on-year in July-September 2021 after a record 20.1 percent growth in the previous three-month period.2
This growth has also been accompanied by a massive rise in incomes that has lifted hundreds of millions out of poverty, adding to the global middle class3. According to a study by Brookings Research, India only accounted for 5% of the global middle class as of 2015. However, that percentage is estimated to grow to 9% in 2020 and 17% in 20304.
With this comes rising consumption. India has been showing steady consumption growth for several years. It is expected that consumption in India will triple by 2030. According to Boston Consulting Group, “growth has been driven by strong fundamentals – increasing share of affluent and elite households, urbanization, nuclearization of households and increasing Gen-I population with higher appetite to spend.”5
‘It is expected that consumption in India will triple by 2030’
India is also increasingly coming online. In 2019, a report found that over 500 million Indians smartphones. That was an increase a 15% increase from 2018, largely due to due to the growing availability of cheaper brands such as Xiaomi and Realme.6 Our own projected rate of smartphone adoption stands at approximately 4,000 freshly minted smartphone users in India every hour, representing a significantly growing user base for companies to capture.
On top of that, there are now 560 million internet users in India, making it the second largest online market in the world, second only to China. It has been estimated that by 2023, that number will grow to 650 million.
So here we have two trends. First, a population getting wealthier, with higher incomes and ability to spend on consumption. Second, a population that is increasingly connected and online. Taken together, this suggests the potential for greater consumerism in general, and strong growth in commerce specifically. Just as our consumption patterns have changed via the internet and smartphone, so too are those in the developing economies of the world.
‘And indeed the Indian ecommerce industry has soared, even more so after a surge in digital adoption during the pandemic’
And indeed the Indian ecommerce industry has soared, even more so after a surge in digital adoption during the pandemic. Ecommerce is estimated to account for 25% of the India’s total retail market, with projections suggesting this could reach 37% by 2030. The Indian ecommerce market was estimated to be worth over $55 billion in Gross Merchandise Value in 2021. By 2030 that is expected to rise to $350 bn.7
But the key question for investors is where will all this money be spent? If Indian e-commerce consumers opt established big name e-commerce platforms such as Amazon or Alibaba, that does not present much of an opportunity for investing Indian equities. However, this is not the case.
Currently, Indian government policy is to support domestic competitors in the e-commerce space. Indeed, Narendra Modi, the prime minister of India, appears to be moving in the Chinese direction of protectionist policies as he recognizes the incredible domestic potential to incubating homegrown names over global rivals.8
As a result, rather than Chinese or US firms filling the gap, increasingly local entrepreneurs are doing so. As Brookings notes: “Homegrown entrepreneurs are uniquely positioned to take advantage of the digital trade opportunity.”9
This can be seen in the huge growth in valuation of Indian e-commerce firms in recent years, as well as a flurry of initial public offerings (IPO). According to GlobalData, a total of six e-commerce companies listed in India between 2019 and 2021. In 2019, there were just two Indian e-commerce firms publicly listed.
The trend is likely to continue 2022, with several major ecommerce companies expected to go public.10 There are now 20 unlisted Indian e-commerce companies with a valuation of over $1billion. Of these 20, 11 reached unicorn status in 2021.11
The wider Indian tech space is also booming beyond just e-commerce. A total of 81 unlisted Indian tech companies can be classified as unicorns, with 44 reaching this status in 2021. Last year saw India overtake United Kingdom in terms of the number of unlisted companies valued at $1 billion, sitting in third place globally.12
1 Next 10 years make-or-break decade for Indian economy: Economists – The Economic Times (indiatimes.com)
2 India GDP Annual Growth Rate | 2022 Data | 2023 Forecast | 1951-2021 Historical (tradingeconomics.com)
3 The World Bank https://www.worldbank.org/en/country/india/overview
4 global_20170228_global-middle-class.pdf (brookings.edu)
5 bcg-rai-report-retail-resurgence-in-india.pdf 6 Smartphone Users in India Crossed 500 Million in 2019, States Report (news18.com)
7 E-commerce Industry in India – Market Size, Opportunties, Growth (investindia.gov.in)
8 Protectionism in India: How New eCommerce Laws Will Impact Brands (scalefast.com)
9 The emerging markets e-commerce opportunity (brookings.edu)
10 Indian ecommerce IPO market to stay strong in 2022 – Verdict
11 India now has four healthtech unicorns | BusinessInsider India
12 Fintech remains the rage | BusinessInsider India
FMQQ Next Frontier Internet & Ecommerce ESG-S UCITS ETF – Acc
‘FMQQ can be an attractive alternative for investors who want to capture the budding opportunities in these ‘next frontier’ markets and/or complement their Chinese tech allocations and balance out their current portfolio weightings.’ – Kevin T. Carter, Founder, EMQQ
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