By AltG Innovation Centre On Behalf Of Poornima Vardhan And Taponeel Mukherjee
As India's GDP accelerates with the "Invest India" theme dominating global headlines, it is becoming increasingly clear that the Indian MSME Private Market is an asset class whose time has come. Global investors, governments, and market participants must notice this emerging asset class, representing a significant opportunity for growth and FDI in India.
What has been the story so far?
Over the past decade, India has seen a flurry of activity around FDI and private equity that has captured the headlines. However, the $650 billion in FDI from 1960 to 2022 has disproportionately gone to larger enterprises or what is defined as mega-cap businesses. India has undergone a structural transformation and de-risking in the last decade.
The introduction of the GST and the rapid digitisation via the tech stack of UPI, Aadhar, and the like have essentially formalised the economy by leaps and bounds. This has opened up the opportunity to generate significant IRRs for both FDI and domestic investors.
That UPI was managing payments volumes of $1.8 Trillion in 2022 shows the sheer scale of the transformation. To put that number in perspective, Consumer and commercial credit, debit and prepaid cards issued in the US carrying the American Express, Discover, Mastercard and Visa brands generated $9.563 Trillion in purchase volume in 2022. That's 18.9% of US volumes via a technology that did not exist a decade back.
The Next Phase Driving India's Growth
Medium-sized private market businesses have contributed 50-60% of GDP in the US and China. For India, medium-sized companies will drive a gargantuan portion of the next phase of growth, with the contribution of the sector closing in on 60% by 2050.
How Will These Mid-Market Champions Be Created?
The opportunity is to roll-up operate and scale a large number of small independent enterprises into a centralised industrial powerhouse by using strong managerial capabilities, industrial organization, innovative capital constructions, cutting-edge technology and clever brand management techniques to grow the businesses. Essentially, a roll-up structure is ideally suited to scale and build India's small independent companies into mid-market champions.
Why Multi-Billion Dollar Private Market MSME Roll-Ups Are Inevitable?
Digitisation in India is just starting to take off massively. These small businesses are the backbone of India's economy. In addition to digitisation, the economy is rapidly formalising with the GST tax regime fully implemented. Much of the formalisation and scaling of traditional free cash flow generating businesses involves using technology as an essential glue that holds the company together.
India is at an inflexion point seen, but once in 1000 years of a nation's history as per capita income crosses 2000 USD per year. As consumption, which will constitute over 60 percent of the economy, takes off, the growth and investment returns from these businesses will be market-beating.
Overall, Indian MSMEs are an asset class whose time has come as the global search for growth and yield heads towards India for both equity and fixed income investors. It's time to put the balance sheet and capital into Indian MSMEs to supercharge India's growth and investment returns.
Disclaimer: Any views, comments or communication (above or in the past) should not be construed to be investment advice by Alternative Growth (hereafter referred to as “AltG”) in any form whatsoever. AltG does not make an offer to sell or solicit to buy any securities.