India: A Big Play For The Next Decadeš
32% return in the last year (and you're not late)
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In this article, weāre talking all about India, why Iām extremely bullish on it, and how we can invest in it to beat the market.
For those who have followed me on X for some time, youāll know Iāve been investing consistently into India since March 2023. This has led to some pretty solid returns (up over 30% on a broad index fund) and much more on the individual stocks I hold. Iāve been meaning to talk about this investment for a while, but Iāve never quite got around to it until nowā¦so here goes.
Takeaways š
Iām going to start including a very brief summary at the start of each article for those of you whoād prefer a very quick read (less than 1 minute reading time).
India is the beneficiary of a demographic dividend, something that was the main driver of Brazil in the 1970s, China in the 1980s, and Singapore in the 1990s.
India, unlike other emerging markets, is positioning itself in a way that they will likely be strong players in many industries, not just a few (like Brazil and China). This is likely the case for at least the next decade.
Because of the economic growth, FDI into India has been booming over the last couple of years. This is essentially a non-debt financial resource to the economy.
I then give you 5 Indian stocks Iām extremely bullish on: Birlasoft Limited, Angel One Limited, Arrow GreenTech, Latent View Analytics, and HCL Technologies.
Why The Bullishness On India?
Despite the recent strong global growth, thereās growing uncertainty around just how sustainable the market growth is particularly with the pretty endless list of risk factors that weāre facing now.
The World Bank fears at some point that a lack of economic growth may cause a ālost decadeā, or a prolonged period of limited growth. For those of you out there who are around my age (mid 20s) this is a bit of a scare. This next decade is a big wealth building period thatāll likely set the scene for the next big phase of my life, and therefore a prolonged period of economic slump needs to be avoided at all costs.
But thereās promise in many areas, one of those being India where many analysts believe the next decade could be Indiaās decade to truly grow disproportionately to the global economy.
And thereās tons of solid fundamental claims to back this up:
Demographic DividendšØāš©āš¦
For any country, the more people that can join the workforce, the faster an economy grows.
India has a huge population (nearing 1 billion), and a median age of just 28 resulting in a rapidly expanding number of working-age people. By 2030, India will have the largest working-age population in the world.
This means that as long as this group has access to jobs, India will benefit massively from whatās known as a demographic dividend.
A demographic dividend refers to the economic advantage that can arise from a favorable demographic structure.
With a larger workforce, there is potential for increased productivity and economic growth. This coincides with less resources needed to be allocated to dependents (children and elderly).
Past examples of demographic dividends:
Brazil 1970s - 2010s. The GDP went from $42B to $2.6T.
China 1970s - 2010s. GDP rose from $100B to $10T.
Singapore 1960s -1990s. GDP rose from $826m to $96B.
India is nextā¦
This is Brazilās stock market since the 1850s. Check out the growth from ~1970s - 2010 when Brazil experienced a demographic dividend.
Diversity and Modernizing Industriesš©āš»
Although a portion of Indiaās population still relies on agrarian and other informal economies, the country is making strong moves to build the necessary infrastructure to be global leaders in many industries.
Manufacturing is booming in India with public-private partnerships.
Electronics manufacturing has grown incredibly with Indian now being the leading smartphone exporter globally.
Other promising industries include fintech, aviation, automobiles, education, healthcare, banking, IT, media, pharma, e-commerce, and telecom.
The main point to understand is that if you compare India to other emerging markets such as Brazil, there is considerably more variety. For example, Brazil are significant global players in oil and gas, iron, and agricultureā¦but they lack strength in many other industries.
And then we can compare India to China who has been so economically reliant on technology (which has now faced many vulnerabilities). India does not have this problem, and likely wonāt over the entirety of the next decade.
Foreign Direct Investment
Because of these bullish points above, India has emerged as one of the top destinations for foreign direct investment. FDI is an essential driver for an economy as it boosts the job market, knowledge base, and essentially provides non-debt financial resources.
Other Bullish Factors
Green transition
Disposable income expected to grow at +15% annually
Domestic policy reforms
Geopolitical positioning
5 Indian Stocks Iām Bullish Onš
1. Birlasoft Limited (BSOFT)
Description:
Birlasoft is a leader in the Cloud, AI, and Digital technologies market throughout India through consultancy services.
They serve in a variety of industries including automotive and transportation, banking, high tech, capital market, insurance, media, manufacturing, energy, and healthcare. Geographically, they also have a diverse presence across Asia, the Middle East, Europe, and Americas.
Fundamentals:
Net Profit Margin: 10.8%
FCF Margin: 10.5%
ROIC: 18.6%
ROE: 22%
FCF Yield: 6.4%
3Yr CAGR Revenue Growth: 13.0%
Investment Case:
A very diversified customer basis and service offering creating a sustainable business that is not reliant on any one customer, offering, industry, or geography.
1.9% QoQ growth despite historically a āsofterā period showing Birlasoftās pricing power and ability to win new clients.
Insiders own 1.6% of the business. Though this isnāt an overwhelming number, for a business of this size it shows that Birlasoft insiders have a substantial amount of capital invested.
Graphic:
2. Angel One Limited (ANGELONE)
Description:
Angel One is an Indian stockbroking firm incorporated back in 1996. Services include online stock broking, depository services, commodity trading, investment advisory services, personal loans, insurance, portfolio management services, and mutual fund distribution.
With just over 17% of the Indian population (compared to 61% in the US), thereās a ton of potential here, especially with increasing disposal income and wealth throughout India.
Fundamentals:
Net Profit Margin: 28.7%
FCF Margin: 23.4%
ROIC: 33.3%
ROE: 48.6%
3Yr CAGR Revenue Growth: 52.0%
Investment Case:
Incredible growth with 14% QoQ total client base growth, 9.3% QoQ NSE (National Stock Exchange of India) active client base growth, and 21.4% QoQ average daily turnover growth.
A market leader (24.7% market share) in an industry that is hugely under-penetrated.
A proposed group structure that is slowly forming. Each business will have differentiated strategies for a more diversified revenue base, as well as decreased costs through synergies and efficiency.
Graphic:
Hereās the number of trades vs Nifty50 index. Itās evident that dips in the market are not scaring investors away.
3. Arrow GreenTech (516064)
Description:
Arrow Greentech is a leading company that produces sustainable green products. They are the Indian leader, and one of the global leaders in the manufacturing of cast water-soluble film. In the globes ongoing effort to become ecofriendly, there will be an ever-growing demand for products such as these.
Water soluble film is used in infection control laundry bags, toilet blocks, detergents, liquid detergents, and dye enzyme film.
Fundamentals:
Net Profit Margin: 21.9%
ROIC: 16.5%
ROE: 35%
FCF Yield: 0%
3Yr CAGR Revenue Growth: 68.9%
Investment Case:
Very strong moat as the largest manufacturer in India, owner of 31 registered patents globally, strong R&D, and big player in a niche market.
Water soluble film market is expected to reach $520m by 2028 (CAGR of 6%) and end-use packaging is growing at 8.3%. The industry will remain very stable even through difficult economic periods.
Diversified product line outside of water soluble film (particularly in the pharmaceutical industry), and also a diversified global presence.
Insiders own 71% of the company.
Graphic:
4. LatentView Analytics (LATENTVIEW)
Description:
LatentView Analytics is in the field of data. They help their clients derive insights and drive growth using advanced analytics and AI.
Fundamentals:
Net Profit Margin: 24%
FCF Margin: 17.3%
ROIC: 32.1%
ROE: 12.4%
FCF Yield: 0.9%
3Yr CAGR Revenue Growth: 20.0%
Investment Case:
Have 30+ Fortune 500 clients, presence in US, Europe, and Asia Pacific, and a 18% revenue growth from FY23.
Very focused on the technology sector with 71% of clients in this industry, however, they also specialize in consumer & retail, financial services, and industrials which are all trending upwards.
Very strong balance sheet with high levels of cash on hand.
Graphic:
5. HCL Technologies
Description:
HCL Technologies is a multinational IT consulting firm that offers development solutions, digital transformation, cloud management, and BPO services.
Fundamentals:
Net Profit Margin: 14.5%
FCF Margin: 19.6%
ROIC: 22.3%
ROE: 24%
FCF Yield: 4.6%
3Yr CAGR Revenue Growth: 9.3%
Investment Case:
Client base is rapidly expanding, particularly noticeable amongst clients where fees are $100m+.
A very diversified client base with recent deal wins in financial services, energy, retail, medical technology, banking, transportation and government.
A rapidly growing GenAI division with huge deal wins in healthcare, pharmaceuticals, financial services, and communication industries which will further boost revenue growth.
Graphic:
One-Pager: Arrow GreenTech Ltd
My favorite stock of the 5 above:
1 Graphic
Thereās so many fundamental reasons to support this forecast below. Itās up to you whether you take advantage of it.
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āWe have 10 year growth rate estimates for India, all the countries top 22 countriesā¦ India has the highest potential growth rateā¦ India is where China was when I started to, I started to go in 1984. So if you look at the complexion, the per capita income and I think Modi is a Deng so that you have a massive reform development, creativity, all those elements, there are of course issues, risk issues. But India is, is very very important.ā - Ray Dalio
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Have you been to India, Oliver?
Super valuable insights!