Bemoaning the absence of growth opportunities is a particularly Western-focused preoccupation.
The tech-driven global growth story of recent years has diminished dramatically over 2022, in the aftermath of distortions fuelled by the pandemic.
But the binary approach to growth versus value discussed by many investors fails to acknowledge the nuances and diversification within growth-focused businesses. A diversity that is certainly evident in India.
In India, unlike more developed economies, growth stories exist in a cross-section of sectors, including banks, specialist medical services providers, retailers and hotels. More ‘conventional' tech-focused businesses can also be considered growth, but stronger opportunities exist in areas where domestic market penetration remains low, such as fintech and home delivery services.
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While domestic Indian growth stocks come in many shapes and sizes, we look for features of ‘business muscularity'. These include a high-quality focus, growing market share, and earnings growth that is compounding year on year. This means when a slow year occurs it translates into lower growth rather than actual contraction. A good example of this is HDFC Bank, which recently reported 21.5% advances growth year on year and 19% earnings growth year on year in the first quarter of the fiscal year (April-June 2022).
India's supportive backdrop
In addition to such a broad set of growth opportunities, India boasts a macroeconomic context in stark contrast with that of the West's tight labour markets, rising inflation, serial central bank rate rises and stagnating or declining growth prospects.
So, while India has experienced an increase in inflation this year, levels are nothing out of the ordinary to those seen during the past decade. Moreover, the Indian consumer prices index held steady at 7% year on year in June, and appears to be in decline as prices for key imports such as semiconductors, copper and wheat have fallen.
Importantly, with a population of 1.4 billion, 65% of whom are farmers, labour and wage pressures simply do not underpin and compound rising prices the way they are currently in the UK, for example. Additionally, India's base rate is already close to 5%, with the central bank in a strong position to further contain inflation if needed.
Again, that is a far cry from the dilemmas faced by the US, UK and Europe, where the gap between inflation rates and their respective base rate presents a real challenge for policymakers.
The upshot of these contrasting scenarios is that India's economy is leading global GDP tables with real GDP growth of over 8% in 2021.
How this relates to strong corporate health
This headline growth is echoed in other metrics we pay attention to. For example, bank credit growth is accelerating, from an increase of 11.2% in April over the same month in the prior year to 14.4% in July 2022. It now stands at a multi-year high on a quarterly basis, as consumers borrow to spend while businesses increasingly seek bank debt in order to expand.
This is positive for domestic banks such as HDFC and ICICI, but also has a multiplier effect as spending percolates through the economy to boost other sectors, from travel and hotels to insurance and jewellery.
Another example of real underlying economic growth in action is mall operator Phoenix Mills, which not only has ambitious plans to double its sites but is reporting like-for-like sales 10% above pre-Covid levels.
Other areas, including international travel, auto sales and liquor are still in the recovery process, with growth expected to pick up towards the end of this year.
In a world where growth is scarce - and growth independent of financial intervention or monetary policy ‘steroids' even rarer - India's youthful demographics, urbanisation trend and rapidly increasing consumer demand offers businesses and their investors a welcome change. All it takes is the foresight from investors to look beyond their backyard.
Andy Draycott (pictured) and Abhinav Mehra are on the CC Indian Subcontinent Fund investment team
