Mumbai, the financial capital of India, has seen many new faces in the past year. The head of the global bank has been on the move, visiting the stock exchange, buying property and hiring new staff.
The post-pandemic boom has boosted India’s stock market value by about $5 trillion, putting it neck and neck with Hong Kong. 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 people, including suburbs. Mumbai has been renovated: Suspension bridges span the sea, as well as notorious slums, and new metro lines have been carved beneath Art Deco and Indo-Saracenic facades and commuter railways.
Mumbai has been India’s commercial hub for eight decades, but was little known in global finance until two years ago.
Now North American pension managers, sovereign wealth funds from the Persian Gulf and Singapore, Japanese banks and private equity firms are clamoring for a share of India’s growth. Old hands and newbies alike can disrupt the cause of India’s inevitable rise.
Making money will be easier said than done, not least because Indian investors come here first. Compared to the current profits of Indian companies, their share prices are high.
Foreign investors have not fully thrown their financial weight. Mumbai markets were jittery in May, as Narendra Modi, the pro-business prime minister, fought for re-election. He is expected to win, but the uncertainty has left investors far and wide feeling wary.
Despite all the hot money pouring into the Mumbai market, India remains a difficult place for foreign companies to navigate, making direct investment risky. The demand for spending by India’s huge consumer base has been unexpected – the top of the income ladder is spending more than ever, while hundreds of millions of people are stuck at the bottom.
A simple reason for investor enthusiasm is the Indian economy, which has the strength of other emerging economies that it currently lacks. Foreign clients, Indian bank executives said, “is India because it shows reliable growth, its currency is stable, it shows fiscal discipline.” He spoke on condition of anonymity because he works with the government.
If India looks better to global investors, China and Russia look worse. China’s incredible growth engine is sputtering, after three decades at full throttle, with the threat of a trade war becoming routine. And Russia has effectively crossed off several lists of viable emerging economies following its entry into Ukraine in 2022 and sanctions imposed by the United States, Europe and its allies.
That’s one reason, bankers say, investors are pushing Wall Street to make it easier to bet money on India.
MSCI, an index of emerging market stocks launched by Morgan Stanley, increased India’s weighting to more than 18 percent, from 8 percent in 2020, while reducing China’s representation. Not just stocks: In June, JPMorgan Chase will add Indian government bonds to its emerging market index. Both changes mean mutual funds are buying more Indian financial assets.
Aashish Agarwal, India country head for investment bank Jefferies, has been doing transactions in Mumbai for more than 20 years. He said the case for investing in India is a no-brainer: Indian stocks are outperforming China. The Indian market also attracts more companies than many other emerging economies, he said.
“You can’t think of Korea without Samsung, or Latin America without commodities,” Mr. Agarwal said. “India, as an index, is probably the most balanced you can find outside the US”
The outlook is bright for Kevin Carter of Lafayette, California, who founded an investment company, called EMQQ Global, that sells exchange-traded funds, making it easy for ordinary people to invest in emerging markets. The value of one fund focused on India’s internet and e-commerce sector has grown nearly 40 percent in the past year.
India, he said, has historically helped emerging markets succeed: a large population, especially young people, and economic growth that has led people to spend more.
With 1.4 billion people and counting, India is the most populous country in the world. Most Indians are of working age or will be soon, unlike Europeans or East Asians. India’s economic growth rate hovers around 7 percent, compared to the world average of 3.2.
For some investors, there is an air of déjà vu. He recalls a time almost 15 years ago when India was finally considered ready to catch up with China’s economic growth rate.
Those who bought India’s hype were left disappointed. From 2008 to 2020, China’s per capita income increased four times while India’s increased 2.5 times. That makes India poor compared to the rest of the world.
The latest calculation by the International Monetary Fund places India at 138th in the national income ranking, between the Republic of Congo and Nicaragua. China is in 65th position. But India is progressing, faster than China.
Along the way, India has spent heavily on public infrastructure, a hallmark of Mr. Modi’s policies during his 10 years in office.
In Mumbai itself, there were only three skyscrapers in 2008 – there will be hundreds 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 in the heart of the city. Tower One BKC, home to Bank of America and Swiss insurance giant Swiss Re, as well as many others, was bought by Blackstone, the world’s largest private equity group, for $300 million in 2019.
Mumbai, of course, is also home to the stock market, which attracts the savings of India’s fast-growing investor class. Banks have made it easier for middle-income Indian families to invest directly. So many new investors are losing money by trading risky derivatives — investment securities linked to other securities — that regulators want to rein them in.
A tougher test for India’s economy is whether it can attract foreign direct investment – the purchase of all parts of a private business by an investor or company.
Nivruti Rai, managing director of Invest India, a joint venture between the commerce ministry and private chambers of commerce, is trying to make things easier. Mrs. Rai has a good position for the project, having spent nearly 30 years at Intel, including India and America.
“I’m a woman, I come from technology, from a multinational,” she said, “and I’m based in India. All this sends a message.”
Extended foreign funding will help strengthen and stabilize the Indian rupee. Investors who make these financial commitments also tend to bring technical expertise.
“We may not have the capital and, in some places, we may not have the technology,” he said.
Mrs. Rai has a lofty target – $100 billion in foreign direct investment. This is higher than what India has projected for 2021, which is a record, and higher than it is today. Inflows fell 16.8 percent last year to more than $28 billion. Foreign investment is shrinking in many places around the world in 2023, but India, like China, is particularly affected. Mrs. Rai however foresees a new cycle of investment activity centered on Indian companies in health care technology, clean energy and artificial intelligence.
Mr. Modi has promised a tenfold increase in India’s economy by 2047, in time to celebrate 100 years of independence. To get there, Ms. Rai noted, the country needs a faster rate of growth, and that means more “these investors we’re trying to attract.”
