Partner Series

5 companies driving growth in India

India is tipped for extraordinary growth in coming years, reaching GDP of $US9 trillion by 2030[1] and overtaking the US as the second largest economy in the world by 2050[2]. Even today, the value of the National Stock Exchange of India (NSE) exceeds the Australian market. The 50 largest blue-chip Indian companies as ranked by the NSE Nifty50 Index are valued at $A1825bn[3], representing approximately 60% of the market capitalisation of India. While Australian investors may be unfamiliar with India’s largest companies, many of these are not only dominant globally but supporting future growth in India.

Kanish Chugh, Head of Distribution for ETF Securities, spoke to Kinjal Desai, Overseas Fund Manager – Equities for Nippon Life India Asset Management about five of the largest listings in the NSE Nifty50 Index and how they are driving India’s rise. The ETFS Reliance India Nifty 50 ETF (ASX code: NDIA) tracks the NSE Nifty50 Index, offering Australian investors exposure to the India economy.

Servicing India and the world

Some of India’s top companies exceed the entire S&P/ASX 200 in market capitalisation and may have a greater role in driving global growth, in addition to the Indian economy, than Australian investors realise. We explore five of these companies below.

1) Reliance Industries (11.1% weight in ETFS Reliance India Nifty 50 ETF as at 21st Dec 2020)

Ms Desai says, “It is the largest private sector enterprise, started in the oil and gas segment with exploration and production and now its actually moved onto retail (consumer electrics, fashion and groceries) and telecom services. Reliance actually has the single largest complex refinery in the world.”

It has been working aggressively to expand its consumer activity. On the telecommunications side, it offered users free internet calling for one year and invested heavily in data services and capacity which has driven it to more than 30% market share in the mobile space[4]. On the retail side, it has recently purchased Future Group[5] – the first to launch hyper stores in India – and its Whatsapp grocery order system called JioMart increased in popularity during lockdown[6].

2) Hindustan Unilever (3.56% weight in ETFS Reliance India Nifty 50 ETF as at 21st Dec 2020)

The largest consumer staples company in India, it has direct coverage of 3.5 million outlets and around 88 million consumers within India[7].

Ms Desai says, “Unilever have a 62% stake in Hindustan Unilever and it contributes about 10% to Unilever’s global sales. Premiumisation has been a very big story for this company and they have effectively done this across all their segments. One example has been laundry detergent. They have successfully created a pyramid of their own portfolio across different price points where even the most premium product is at an affordable price point allowing penetration even in rural areas. About 60% of India’s consumption takes place in the rural areas.”

3) Maruti Suzuki (1.72% weight in ETFS Reliance India Nifty 50 ETF as at 21st Dec 2020)

Maruti Suzuki is the largest passenger car company in India and has 50% domestic market share[8]. The COVID-19 pandemic has supported increased interest in personal vehicle ownership, with 57% of Indian consumers considering purchasing a car in 2020 compared to the global average of 35%[9].

“It is a subsidiary of Suzuki Motor Corporation of Japan. It owns a 56% share. They are able to produce 1.6 million vehicles per annum. In addition to this Suzuki actually put up a dedicated plant in Gujarat as well. Overall, the penetration in India for individual vehicles is quite low. It’s expected to reach anywhere between 27 to 30%,” says Ms Desai.

4) Infosys (7.45% weight in ETFS Reliance India Nifty 50 ETF as at 21st Dec 2020)

Infosys, India’s second largest provider of consulting and IT services across the globe with a staff headcount of more than 240,000 in nearly 50 countries[10]. Infosys’ proprietary software Finacle is considered an industry-leading program and used globally[11].

“It is one of the fastest growing IT service organisations globally and a leader in the offshore service space. The US and Europe actually make up almost 85% of their revenue. Finacle is used by leading banks in India, the Middle-East, Africa and Europe. Infosys has been increasing local hiring over the past two to three years. It gives them a bit of an edge in the market. The company has changed its tactical allocation policies and that means they will be returning almost 85% of the free cashflow back to shareholders in the form of dividends and buybacks,” says Ms Desai.

5) HDFC bank (10.49% weight in ETFS Reliance India Nifty 50 ETF as at 21st Dec 2020)

HDFC is the largest private sector bank in the country – noting that 60% of the Indian financial system is in the private sector). HDFC is focused on customer acquisition across channels, including digital with an emphasis on low-risk, short-duration working capital lending.

Ms Desai says, “they’ve seen almost 15-20% CAGR over the past 10 years. They have been enhancing brand productivity and going into rural semi-urban populations and targeting the top 20-25% of that area. They’ve been creating a virtual relationship management strategy and targeting automation. They are currently servicing about 6 million people but are targeting 25-30 million customers through this.”

How to invest in Indian companies

It can be difficult for investors to directly access the Indian market for listed shares. From this perspective, investors could consider other options such as:

- Direct investment in companies with business operations in India listed in Australia or internationally.

- Actively or passively managed funds which focus on Asia, themes relevant to Asia or India or specifically focus on India.

ETFS Reliance India Nifty 50 ETF (ASX code: NDIA) is the only fund in Australia that offers exposure to the Indian economy via its benchmark index, the NSE Nifty50 Index. NDIA includes exposure to the 50 largest and most liquid companies listed on the National Stock Exchange of India (NSE) and represents more than 60% of the market capitalisation of India.

References

[1] https://www.cbre.com/research-and-reports/India-2030---Exploring-the-future

[2] https://www.pwc.com/gx/en/issues/economy/the-world-in-2050.html

[3] Source: Morningstar; Bloomberg; ETF Securities. Data as at 30 October 2020.

[4] https://www.bloombergquint.com/business/jio-becomes-first-telco-to-cross-40-crore-subscribers-mark-trai-data

[5] https://www.moneycontrol.com/news/business/reliance-retail-future-group-deal-how-will-it-benefit-rils-consumer-facing-businesses 5770431.html#:~:text=Reliance%20Retail%20is%20by%20far%20the%20largest%20retailer,chief%20executive%20of%20retail%20consultancy%20firm%20Third%20Eyesight

[6] https://www.brand-experts.com/brand-best-practice/covid-19-impact-reliance-industries/

[7] https://www.hul.co.in/investor-relations/

[8] https://timesofindia.indiatimes.com/auto/news/maruti-suzukis-mpv-market-share-touches-50-as-xl6-completes-a-year/articleshow/77714792.cms

[9] https://auto.economictimes.indiatimes.com/news/passenger-vehicle/cars/almost-57-indian-consumers-willing-to-purchase-cars-in-2020-survey/75672140

[10] https://www.infosys.com/about.html

[11] https://www.edgeverve.com/finacle/australia/