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Market Commentary Postcard from India—Seeking New Opportunities
My colleague, Lydia So, and I recently returned from a trip to India to visit companies and meet with management teams, seeking new opportunities for the Matthews Asia Small Companies Fund. The week we landed in Mumbai, the city was buzzing with revelers commemorating a Hindu festival to celebrate the deity Ganesh. Families and small groups descended into the streets, singing, dancing and carrying idols of the elephant-headed Lord Ganesh. There seemed to be much to celebrate in spite of the country’s latest inflation concerns. Investing in small companies is more risky and volatile than investing in large companies. Annual incomes for half of all Indian households have risen during the last year. For one-third of these households, incomes have grown by more than 20%. Over the last few years, discretionary income has also increased. City dwellers spent approximately 42% of their income on food in the early 1990s, whereas today that expenditure makes up just about 25% to 30% of their income. Indian consumers, who are increasingly making lifestyle choices, are now able to spend more on items such as apparel, automobiles and cell phones. Instead of shopping at mom-and-pop apparel stores, consumers are patronizing larger, more modern air conditioned malls. As recently as two years ago, modern retailing’s share of the total consumer spending pie was only 3% to 4%. But that segment grew at more than 40% in 2007 to claim a 6% share. In addition to the malls, Indian consumers are also increasingly shopping at hypermarkets as opposed to local farmers’ markets. A logistics company we spoke with commented on the growth of hypermarkets and the opportunity for them to supply refrigerated fruits and vegetables year round. Today, up to 35% of fruits and vegetables are wasted due to spoilage from poor storage, handling, distribution and transportation. Better handling techniques and infrastructure to reduce this waste would deliver a substantial benefit not only to consumers, but also to the retail industry and farmers. One of the heartening off-shoots of rising incomes is a lower drop-out rate for students beyond elementary school. India spends about 4% of GDP on education, which is comparable to other developing nations. But there is a lack of focus on primary education, and fewer than three-quarters of all primary students stay in school. A company we met with, which focuses its business on primary education, noted a slight, recent increase in student retention due to improved parental awareness and a rise in personal incomes. Although this is inspiring, India’s 67% adult literacy still has a ways to go. Perhaps prayers to Ganesh, widely worshipped as the supreme god of wisdom, prosperity and good fortune, will be answered soon. Noor Kamruddin
Single country and sector funds may be subject to a higher degree of market risk than diversified funds because of concentration in a specific sector or geographic region. The subject matter contained herein has been derived from several sources believed to be reliable and accurate at the time of compilation. Matthews does not accept any liability for losses either direct or consequential caused by the use of this information. |
