India’s $1 Trillion Opportunity

With a rapidly growing tech industry, the country has been identified as a major frontrunner in the emerging markets.

(Dhiraj Singh/Bloomberg)

(Dhiraj Singh/Bloomberg)

India’s digital economy is poised to mirror China’s, and is expected to be worth a staggering $1 trillion in the next five to six years.

According to a white paper by Investcorp, expected to be released Monday, India’s digital advancement has further accelerated amid the pandemic as consumers relied on technology to meet everyday needs — from purchasing groceries and other essentials to accessing education and healthcare services.

In a country that has been one of the hardest-hit by the pandemic, 11 new unicorns (private tech companies with a valuation of at least $1 billion) were created in 2020 — the equivalent of the previous three years combined. In the first half of 2021, India boasted 15 new unicorns, which raised a total of $6 billion at an aggregate valuation of $28 billion. Investcorp now estimates that 100 new unicorns will be created in the country by 2025.

The asset manager, which entered the market itself two years ago, said that India’s digital journey reflects China’s, where economic development has expanded alongside its technological access. “In both India and China, e-commerce is substituting traditional commerce, skipping a generation of brick-and-mortar companies which have been the experience of the West,” the report stated. “And in both, the impact of digitization is felt beyond the consumption economy as technology fundamentally alters the sector maps of industries — from logistics to manufacturing.”

There are also demographic similarities in the growing middle classes of the two countries.


“This group of people” —mostly in their late 20s — “is a generation that has leapfrogged the usual tools of consumption many of us were used to in Western economies,” said Rishi Kapoor, Investcorp’s co-chief executive officer.

“Their first port of call is a digital channel… their mobile device is the primary channel they have in terms of consumption,” he added. “That is very specific to how China evolved and now we see in India, — with a gap of seven to eight years — in exactly the same way.” Last year, India’s mobile app downloads amounted to 218 billion or 14 percent of the world’s total, according to Investcorp.

The country has also recently adopted a single tax rate across states for the delivery and transportation of goods and services, as is the case in China and the U.S. All this combined with India’s growing middle class population — projected to reach 1 billion by 2030 — will be the inherent enabler behind the country’s buildout of a digital economy, potentially the fastest growing in the world.

Worth $250 billion in 2020, India’s tech sector accounted for less than 10 percent of its total gross domestic product, providing “significant room for value creation,” according to the report.

Part of India’s rapid digital expansion lies in the value of its cost advantages compared to developed markets such as the U.S. Its labor cost arbitrage, in particular, was seen as a key benefit and exists across various operations, including product development, sales, and post-sales support. According to the report, the country’s cost of talent is often 70 to 80 percent lower than its global peers.

This can be good for investors seeking to gain more exposure to emerging market strategies, in both public and private assets.

“China has matured. It’s a very large and very deep economy and it will continue to grow at a decent pace but it has matured,” Kapoor said. “India is yet to hit that inflection point and we feel that we are poised for a very rapid 25 to 30 percent annual growth over the next few years.”

Currently, less than 1 percent of India’s BSE 500 Index value comes from tech companies, creating ample opportunities for private market investors. (For perspective: that figure is more than 30 percent for the S&P 500.)

“We anticipate strong investor demand as India’s booming unicorns ready themselves for public listing,” Investcorp said in the report.

But to gain any meaningful exposure into the market means having the right teams on the ground. “It would be naive to expect for anyone to be able to do it from afar,” Kapoor said. “Many investors set up an office in one part of the world and [from there] cover other areas — but in a market like India and with this opportunity that is not a viable approach.”

“Find managers who are based in India… who are completely plugged into the local network of relationships across the community of stakeholders,” Kapoor said. “The nuances of the Indian market are many. There’s a value focus, there’s an inclusion element to the agenda, and understanding the importance that each of the three pillars of E, S, and G, [that you need] to play in a market like India.”

The best results, Kapoor believes, will come from having a proper local presence and the insight of an international global outlook, through which best practices can be adopted. “[Indian companies] have real potential to reach across borders and grow in the international arena as well,” he said.