Ellerston Asia & Ellerston India Portfolio Manager, Mary Manning, joined Asialink Business to discuss India and why India is unique and not the next China.
The structures of the two economies are very different and beyond coal, exporting bulk commodities is not going to be the bedrock of Australia’s relationship with India. India is also at a very different stage of economic development to China, with different consumer preferences, price points and distribution channels. These factors give rise to a completely different set of sectoral opportunities, that will most likely require capital investment on the ground – but one size does not fit all when it comes allocating capital in India.
Mary cited several examples of successful investment in India by multi-national corporations that cut across geographies, sectors, time frames and business models, such as majority stakes in listed companies, through to unlisted joint ventures and distribution agreements. These companies include household names in Unilever, Suzuki, Prudential, Macquarie, Facebook, Alibaba, McDonalds, Walmart, and QBE.
Unilever has been involved in India since 1888 and today Hindustan Unilever (HUL) which was first publicly listed in 1956 – with Unilever maintaining a majority stake – is India’s largest FMCG company with a market capitalisation of over $100 billion and annual sales of over $8 billion.
HUL’s return on equity (ROE) is 83 per cent, significantly higher than the parent company’s ROE of approximately 46 per cent. HUK’s ‘Winning in Many India’s’ strategy has been a key driver of its success with a key focus on addressing diversity across cultures, spending habits, tastes and preferences in 14 different geographical clusters. Like China, India cannot be treated as one homogenous market.
The higher returns on equity that could be achieved in India were a major reason why Australian companies should be considering investment opportunities there. There was currently an investor scramble for ‘new economy’ assets in India in key areas such as healthcare and infrastructure and while good buying opportunities could present over the next six to 12 months for equity investors – with the Indian economy weakened by COVID-19 – a long-term view was needed.
You can watch the video of the Asia Market Update Series Seminar below and read the panel’s notes here.