India: Credit Suisse

One of the amazing benefits of our efforts on this Investment Trek is the connections we’re making and network of smart, passionate people we’ve been privileged to meet.  If you’ve read earlier blog posts from the first half of the trek, you will know that John Lunt visited Mumbai, India on his journey a few months.  John had some amazing meetings and met some fantastic people in Mumbai.

An unexpected connection from Mumbai came through a random introduction when John attended a church meeting.  Shortly thereafter, I received an email from a gentleman who works for Credit Suisse in Mumbai.  He was eager to connect the dots between me and a Credit Suisse team when I visited New Delhi.  A special thanks to Praveen Sumarajan David for his efforts to coordinate a meeting during my visit to India.  Like so many others on our trek, Praveen went above and beyond to accommodate a meeting and we’re truly grateful.

I had the opportunity to have a great discussion with Sangram Singh at Credit Suisse.  Consistent with all other discussions I had in India, we spent a significant portion of our time talking about Prime Minister Modi and the hope and promise he represents for India.  Sangram, however, added some additional perspectives I hadn’t heard before and for which I’m grateful.

I expressed my concern that while very promising, India has a “key man” problem in Modi.  If all the ideas and vision reside with one man (Modi) and that man is somehow removed from office (either democratically or through some other more nefarious way), what happens to all the reforms?  The progress?  The hope?

Sangram was quick to point out that Modi is just one man and, in fact, the Prime Minister doesn’t really run the country.  The real power resides in the states.  What makes the May 2014 election so important is the way in which people voted.  The masses voted for pro-development, pro-growth, and anti-corruption in unprecedented majorities.  As Sangram explained, “this is a HUGE change for India.”

Since the real power resides at the state level, the real change must happen at the state level.  The election results sent an unambiguous, resounding message that every politician heard loud and clear.  People want change.  People want development.  People want corruption to end.  And there’s a real hope and expectation that the change people want will come.  Politicians are responding and embracing a new vision for India.  To win elections in India now, politicians must adopt a pro-development, anti-corruption stance.  “The ‘new’ India was born in May 2014.”

Sangram noted that the big cities in India (Delhi, Mumbai, etc.) represent “pockets of hope,” while much of India is very similar to sub-Saharan Africa.  The total lack of infrastructure and absolute desperation of the people living in large portions of India is unimaginable.  This daunting challenge also represents an amazing opportunity for change and progress.  As Sangram noted, building another road in Delhi isn’t going to move the needle at all… but building a road into a village that is essentially cut off from the outside world will fundamentally change their lives.

There are 1.3 billion people in India, but only approx. 200 million of them are discretionary buyers at this point.  Infrastructure initiatives that bring the other 1.1 billion people into the modern world will have a dramatic impact on the economy and the standard of living in India.  Roads, electricity, mobile networks… the infrastructure is changing everything.

According to Sangram, the most dramatic infrastructure investment play in India was a few years ago (2004-2007).  Infrastructure initiatives are still going strong, but the lowest hanging fruit has been picked.  What’s most important about infrastructure for India is that the improvements are widespread, not just concentrated in the large urban areas.  Changes to rural India are fundamentally changing lives.

Regarding corruption in India, Sangram encouraged me to take a look at the list of Indian billionaires and he told me what I’d find – that the list doesn’t change.  This is because of the “crony capitalism” that has existed in India for decades.  With the dramatic reforms that are re-shaping the business landscape in India, the crony capitalists are finding that they can’t get away with the same, corrupt practices that they did in the past.

During the conversation, we talked about specific companies and sectors that show real promise in India and are enjoying dramatic gains.  My compliance officer wouldn’t be particularly happy with me listing those specific details in this blog forum, so those can wait for future discussion for anyone who may be interested.  Details aside, the broad take-aways from my discussion with Sangram were consistent with other conversations I had while in India.  There is a hunger for change and a desire for progress in India that permeates everything.  There is great hope in the positive change that has already come to India and an eagerness to continue on the path they’re on to greater prosperity.

 

Special thanks to Brennan Staheli, Peter Johnson, and the Lunt Capital team for their contributions to this report.