Mumbai, the financial capital of India, saw many new faces last year. The heads of global banks have been on hand, visiting their stock exchanges, buying properties and hiring new staff.
A post-pandemic boom has lifted the value of India’s stock market to about $5 billion, putting it neck-and-neck 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 inhabitants, including its suburbs. Mumbai has undergone a makeover: Suspension bridges span its waterways as well as its infamous slums, and new metro lines have been carved beneath its Art Deco and Indo-Saracenic facades and its noisy suburban railways.
Mumbai has been India’s commercial hub for eight decades, but was relatively unfamiliar to global finance until the last two years.
Now, American pension managers, sovereign wealth funds in the Persian Gulf and Singapore, Japanese banks and private equity firms are clamoring for a share of India’s growth. Veterans and newcomers alike can recite reasons why India’s rise is inevitable.
Making money will be easier said than done, especially since Indian investors got here first. Compared to the current profits of Indian companies, their share prices are high.
Foreign investors have not yet invested their full financial weight. Mumbai’s markets were buzzing 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 capital invested in Mumbai’s markets, India remains a difficult place for foreign companies to navigate, making direct investment risky. Demand for spending from India’s potentially vast consumer base has fallen short of expectations – the top of the income scale is spending more than ever, while hundreds of millions of people are stuck near the bottom.
The simple reason for investor enthusiasm is India’s economy, which has strengths that other major emerging economies currently lack. Foreign clients, said an Indian bank executive, “gravitate toward India because the country has reliable growth, its currency is stable and it demonstrates 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 failing after three decades at full steam ahead, and threats of trade wars are becoming routine. And Russia has effectively been scratched from some lists of viable emerging economies following the 2022 invasion of Ukraine and the sanctions imposed on it by the United States, Europe and its 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.
MSCI, an influential emerging market equity index started by Morgan Stanley, increased India’s weighting to over 18% from 8% in 2020, while reducing China’s representation. It’s not just 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, India head of investment bank Jefferies, has been doing business in Mumbai for over 20 years. He said the case for investing in India was obvious: Indian stocks are outperforming China. India’s markets also draw on a wider range of companies than many other emerging economies, he said.
“You cannot think of Korea without Samsung, or Latin America without commodities,” said Agarwal. “India, as an index, is without a doubt the most balanced one you can find outside of the US”
The outlook seems equally positive for Kevin Carter of Lafayette, California. He founded an investment company, called EMQQ Global, that sells exchange-traded funds, which makes it easier for ordinary people to invest in emerging markets. The value of a fund that focuses on India’s internet and e-commerce sectors grew nearly 40% last year.
India, he said, has the ingredients that have 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 inhabitants 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 it was last thought that India was ready to surpass China’s economic growth rate.
Those who believed the India hype ended up disappointed. From 2008 to 2020, China’s per capita income quadrupled, while India’s grew 2.5 times. This has left India poor compared to the rest of the world.
The latest calculation by the International Monetary Fund placed India at 138th in the national income ranking, between the Republic of Congo and Nicaragua. China ranked 65th. But India is rising, much faster than China.
Along the way, India is spending heavily on public infrastructure, a hallmark of Modi’s policies throughout his 10 years in office.
In Mumbai, there were just three skyscrapers in 2008 – hundreds of them will have come up by the end of this year. The city’s center of gravity has shifted from the city center to the purpose-built Bandra Kurla Complex, or BKC, a concrete spaghetti sprawl in the city center. 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 around $300 million in 2019.
Mumbai, of course, is also home to the stock market, which has attracted the savings of India’s rapidly expanding investor class. Banks have made it easier for middle-income Indian families to invest directly. So many novice investors have lost money in risky trading in 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 buying of entire parts of private companies by investors or companies.
Nivruti Rai, managing director of Invest India, a joint venture between the Ministry of Commerce and private chambers of commerce, is trying to smooth the way. Ms. Rai is well positioned for the role, having spent nearly 30 years at Intel, spanning India and America.
“I’m a woman, I come from technology, from a multinational,” she said, “and I live in India. All of this sends a message.”
More long-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 be lacking capital, and in some places we may be lacking technology,” she said.
Ms Rai has a lofty target – $100 billion in foreign direct investment. This is higher than what India achieved in 2021, which was a record, and much higher than what it is now. Inflows fell 16.8% last year, to just over US$28 billion. Foreign investment declined in many parts of the world in 2023, but India, like China, was hit especially hard. However, Rai foresees a new round of investment activity focusing on Indian companies in healthcare technology, clean energy and artificial intelligence.
Modi has promised a tenfold increase in India’s economy by 2047, in time for the 100th anniversary of its independence. To get there, Rai noted, the country will need an even faster growth rate, and that means more of “those investors we’re trying to attract.”