By AltG Research
Our Principals, Poornima Vardhan and Taponeel Mukherjee, talk about "Differentiating To Generate Value in India's Private Markets" by connecting the "Micro To The Macro".
Taponeel: Okay, we're discussing differentiating to generate value from India's private markets today. What's been going on in these private markets in terms of deals in terms of opportunities that are structured?
Poornima: So, India's investment market is fascinating. There is obviously a lot of growth. But if you see the broader structure, a few large-cap opportunities are being chased by a lot of private equity funds at rich valuations due to the competition.
So on one side, there are great opportunities that are undiscovered today, and then on the other side, we have these opportunities that everyone is chasing.
Taponeel: Okay, so let's break it down. On one side, you've got people chasing these opportunities. What does that mean? Does that mean there are deals, but there's a lot of capital chasing these opportunities, and can you tell us a bit more about what problems that creates?
Poornima: So there are deals, typically large cap, that a lot of capital providers chase as they need a certain ticket size, and they are few and far between. But what is very important to note is that these opportunities are very expensive. So when in investing, we say purchase price matters. These opportunities have a purchase price that mostly bakes in the future growth into the price. Getting a return on these opportunities, a certain kind of high return, would be challenging.
Taponeel: Interesting! So What Does It Take To Win In India? You mentioned something interesting: there are other opportunities that are not looked at. So, what are these? Also, tell us more about the India-centric approach that is essential to generate exceptional investment returns in India.
Poornima: So the first question you asked is, what opportunities are not looked at as much, right?
It's a very interesting time in India; India is now the most populous country in the world. We've got consumer markets, growth at an unprecedented level. So India is really going to be the growth capital of the world. And what is really interesting is there's a lot of latent demand and undiscovered demand for industries that, the macro trends have not been able to capture effectively.
In fact, historically, if you look back, the macro trends were late in spotting the opportunities, but latent demand for the industry was forming and visible via the Micro Markets. Essentially, big opportunities appear on the investment radars late, but the real opportunity is getting into them as the Micro indicators start flashing.
To give you an example, if you look at the 2010s in India, there was this whole boom of affordable housing in India because, Aadhaar, which is the unique identification number that came into being and that really gave access to credit for housing to millions and millions of people. So we saw a lot of derivative businesses of housing, such as KEI, which does wiring for housing, astral pipe for water piping, etc., do exceptionally well. It really grew very, very spectacularly and very fast. I am talking about 100X growth in 10 years.
The real important point here is that if you can look at and identify this latent demand, that is where the big opportunities will be. Therefore that is where the massive returns are going to be generated.
The way to look at this latent undiscovered demand is through micro analysis by connecting the “Micro to the Macro”. This is essentially what AltG's Local Market Intelligence Research Team tells us by collecting and analysing billions and billions of data points across India. We use our APEXX Formula to look at this empirical data and identify patterns and industries where we see this latent demand.
Taponeel: So basically, to succeed in India and generate exceptional returns, you need an India-centric approach, right? And what you're saying is the ability to link the Micro to the Macro and identify industries that have a lot of leading consumer demand ahead of the competition is what generates exceptional returns.
Taponeel: And so, to give a quick overview, going forward, what are some of the attractive sectors?
Poornima: The next phase of growth from some latent demand industries are going to be financial data businesses, insurance broking and cleantech.
The way B2B MSMEs consume financial data is rapidly transforming. So anyone, any company, any business, that is providing them with that kind of information, not just from a data perspective, but also from an analysis perspective, will be huge, And we've seen that with companies like FactSet and Dun & Bradstreet in the US, which really, really took off.
We've also been looking a lot at insurance broking businesses where, as these MSMEs get organised, there will be a lot of demand for B2B insurance products that these insurance brokers will service. Again, a very exciting industry!
And, obviously, clean technology is going to be a huge industry as well because as we get more efficient in our energy consumption, there will be an insane amount of demand for that sector as well.
Taponeel: Interesting! So, the big takeaway is that as India grows, per capita income goes aggressively above 2000 US dollars per year, what you're going to see is a massive formalisation of MSMEs that creates lots of large businesses but also creates the opportunity for businesses that are going to be serving these MSMEs from, as you said, a data perspective, an insurance perspective etc. And that's going to create a lot of value.
And, of course, clean technology is something that will be defining in the 21st century, and surely, it will be defining for 1.5 billion Indians for them to have a better life in the 21st century. So that's super interesting.
And I think, to summarize, differentiating in India's private market is all about being able to understand the microstructure of the market and then taking that to the macro level to create the platforms that are going to generate value.
Poornima: Yeah, so just a simpler way to understand is, if you can get the local entrepreneurial sort of operator's knowledge from information at the micro level and match that with, global financial strategy - that's where the real value creation lies.
Taponeel: That's super interesting. Thank you.