Can investors afford to ignore India?

To show just how important India might be to some international players let’s start with the one of the biggest companies of all – Apple. As we all know the new iPhone 7 was launched last week. We also know (from some of my previous posts that the spend on luxury goods is still nowhere near of that in the West. There is no doubt, an iPhone in India is definitely considered a luxury good. As I mentioned last week there was clear intention shown by Apple to offer iPhones at cheaper prices. Prices have now been firmed up for the launch in India and the intention made clear – India is a market Apple needs to penetrate such is the importance! Not only this, but the company has also slashed prices of its iPhone 6 series which is rather unprecedented for a company that never discounts. On the subject of big tech players entering India; it’s not news that Uber is well established in the country. However, to strengthen presence and out-gun its main rival, home-grown cab hailing firm, Ola, they have created some partnerships locally in an effort to create 1 million jobs by 2018. This is another great example of how India is benefiting from technology investments in more than just the obvious way. Especially as there looks like there will be a major benefit to unskilled people.

Speaking about tech investments, and if you’ve ever met me, you will know I am always questioning why European investors are not in India in the same way US and Asian investors (excluding India) are. I don’t think it’s necessary to provide evidence on how deeply US VC/PE firms are involved in the Indian tech scene as it seems whenever a new investment is mentioned a US firm is never far behind. Therefore, I chose to illustrate just how much Asian investors, specifically from China and Japan, are backing the Indian start-up ecosystem. What’s really interesting is that these countries seem to be ramping up their interest when others are slowing down. One meaningful observation is that there has been a decrease in the average deal size. Perhaps we might see more investors within India Angel groups seem to be picking up activity, which would only be good for early institutional investors. Of course, disruption is often spoken about in the same breath as technology start-ups. Also, on a few occasions, I have written about the buy versus build conundrum which I have always believed is won by the buy side. Couple these two points together and you see why Indian companies face the spectre of disruption.

The India government is certainly doing its part to ensure technology and its adoption is at the forefront of its plans through initiatives such as Digital India. I have previously written about the great strides being taken by the government from investment monies to up-skilling , and therefore, doesn’t surprise me they have taken yet another set to set up an e-governance academy and initiated the appointment of chief IT officers  in all ministries. Now that GST (Goods and Services Tax) is in implementation mode the point on governance is particularly relevant here as well. It is therefore very heartening to see a GST Council has been established to ensure implementation and governance are executed with the highest standards through this radical shift in structure. The belief is the increase in tax compliance that will be introduced with GST is likely to attract more foreign direct investment (FDI) into India. These changes are perceived to benefit multiple sectors.

Given the improvement in FDI expected post the implementation of GST, it is even more encouraging to see that companies from around the world are looking at India for expansion and growth. Much like Apple, there are many other non-technology players who also see India as a market they can’t afford to ignore. For instance, IKEA seems like it has big plans for Asia and is planning to open its first store in India by next year and 25 in total by 2025. Another business which is expecting huge growth in India is audio expert, Harman International, maker of both JBL and Harman Kardon audio systems. UK retailers are also looking to get into the act by partnering with local businesses to establish a foothold in India.  Even though India recently allowed 100% FDI the retail of food products manufactured within the country, these players recognise the unique set of skills and understanding required to be a success in India. This sentiment most certainly applies to the majority of sectors within India and is one that we at Earlsfield Capital are very familiar with.


Author: Dishang Pateldish-colour