Watch Out, China: Why Investors May Flock to India Next

The urbanization of India will yield some of the best global investment opportunities — but they come with significant challenges to allocators, according to new research.

India Gate monument (Ruhani Kaur/Bloomberg)

India Gate monument

(Ruhani Kaur/Bloomberg)

With China shrouded in political and economic uncertainty, it’s time to invest in India. That’s according to a white paper expected to be released this week from alternative investment firm Investcorp, which argues that any of the same themes that have made allocators salivate over China’s investment opportunities are still relatively nascent in India.

When it comes to urbanization, India is where China was back in 2000, according to the paper, entitled “A Different India: Opportunities from India’s Urbanization Dividend and Structural Reforms. Three hundred million people are anticipated to move to urban areas in India. Over the next 20 years, the top-ten fastest-growing cities in the world are expected to be in India — according to data from forecasting and analysis firm Oxford Economics cited in the report — as the country urbanizes at a historic pace, supercharging the economy and creating investment opportunities.

That doesn’t mean finding the best opportunities will be easy, however.

“Investing in growth areas does not necessarily lead to good investment results, as hyper-competitiveness, for example, in the airline and telecom industries have revealed,” according to the report.

Other challenges include the slowdown of India’s economy. Among other things, Investcorp attributes that to government initiatives over the last five years that have changed tax collection, bankruptcy, legal, healthcare, real estate, and political structures.

“These large-scale reforms have disrupted the normal flow of business, leading to a slowdown,” says Investcorp.

Even with the short-term pain, the government is making moves to restructure the now fragmented country into a unified market.

“Additional changes are necessary in corporate governance, policy clarity and stability, tax reform for foreign investors (dividend and long-term capital gains), and investment infrastructure (credit market development, regulatory, legal) before the true potential for outsized returns from India becomes a reality for foreign investors,” according to the report.

Investcorp argued in the paper that housing, consumer technology, healthcare, and financial services stand to benefit from ongoing reforms and population trends.

[II Deep Dive: The Land of Alts Opportunities]

As one example, Investcorp is hoping to set up an NBFC, a non-banking finance company. It’s a good time for NBFCs given the dearth of wholesale financing in India, as banks have stepped back from wholesale real estate lending and as non-banks have faced liquidity issues, the alternatives firm said.

Investcorp also notes that it has made a number investments to capitalize on what it calls the intersection of consumers and technology. The firm has invested in Zolo Stays, a home rental start-up company. In addition, it has invested in a value apparel retail chain in New Delhi called Citykart Retail. Other India investments include InCred Financial Services, eye care hospital chain ASG Eye Hospitals, and NephroPlus, a dialysis service provider with the largest network of dialysis centers in India.

The movement of the population in India from rural areas to big cities and the ensuing economic and social impacts will dwarf what happened in the U.S., Investcorp said in the report.

“The United States took five decades to double its national income in the early 1900s,” wrote the study’s authors. “This was a 3x improvement over the industrial revolution in the United Kingdom in the late 1700s. India hopes to achieve this feat in the next 10 years. This is a 5x improvement in terms of time taken. Notably, India is navigating this transition with 13x the number of people compared to the United States.”

Take note, investors.