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Expensive (for a reason) India

Rebecca Lewis, Partner and Co-CEO

We agree that valuations in India are the key area of focus
for investors thinking about this market as a destination of capital. Having
been investing in consumer businesses in the country since 1999 we know from
experience that it is market where long-term investors can be rewarded. The double-digit
USD return of Arisaig’s India exposure on the Asian Strategy is testament to
that.

Out of the full gamut of factors driving multiples in India;
we believe that three are most material for us as equity investors:

 

       1.    High prevalence of compounders: India beats allcomers when it comes to the
proportion of the market that can compound away at double digits over the
long-term

*Based on respective Index ETF constituents, proportion of companies with total return CAGR of 10%+ over 10 yrs as per Bloomberg

Source: Bloomberg, Worldbank, MSCI, Arisaig Partners  

2.    High share of low/no debt companies: Our consumer holdings tend to be net cash but the high cost of capital over India’s history mean that healthy balance sheets are widespread in India.

Source: Bloomberg, Worldbank, MSCI, Arisaig Partners

          3. Systematic Investment Plans: A developing feature of India’s equity market has been monthly inflows into domestic mutual funds – through Systematic Investment Plans or “SIPs”. Over the last 8 years flows have risen from USD400m to nearly USD2.5bn per month. Not to be confused with speculation, SIPs are recurring deposits into mutual funds with around 50million Indians saving on average USD50 per month but as little as USD6.

*SIP is systematic investment plan, where a fixed amount is invested on your behalf into mutual funds;

 

Source: Jefferies research, Arisaig research, AMFI

As consumer investors since 1996 clients know we love to wax lyrical about the low levels of consumption of packaged food and cosmetics in India, the low level of equity exposure (6% vs 40%+ in developed markets) is equally compelling. Like other markets property and fixed deposits are a feature of an Indian household balance sheet but it is the cultural predilection for owning gold that will continue to fall over time. 

Source: Jefferies research, Arisaig research, ICI research

 

Our Partner based in Mumbai, Vatsal Mody, loves to talk about valuations (and India) and so reach out if you would like to hear more.

Disclaimer:

This material is being furnished for general informational and/or promotional purposes to professional investors only. The views expressed are those of Arisaig Partners and should not be considered as advice or a recommendation to buy, sell or hold a particular investment. They reflect opinion and should not be taken as statements of fact, nor should any reliance be placed on them when making investment decisions. This material does not constitute independent research and is not subject to the protections afforded to independent research.

The statements and views expressed herein are subject to change and may not express current views. Arisaig Partners makes no representation or warranty, express or implied, regarding the accuracy of the assumptions, future financial performance or events. Emerging markets are generally more sensitive to economic and political conditions than developed markets and may be more volatile and less liquid than other investments.

All information is sourced from Arisaig Partners and is current unless otherwise stated. Issued by Arisaig Partners (Asia) Pte. Ltd. Not for public use or distribution. Arisaig Partners (Asia) Pte. Ltd is licensed and regulated by the Monetary Authority of Singapore.

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