Infrastructure projects support India's economic growth

Jürgen Maier, fund manager in the “CEE & Global Emerging Markets” team at Raiffeisen Capital Management, in an interview.

You have just returned from a business trip to India. What are your impressions of the economic situation in India?

Jürgen Maier: The Indian economy has grown very dynamically in recent years. Particularly impressive is the large number of infrastructure projects currently being implemented. These projects not only drive economic development, but also significantly improve the quality of life for the population. We visited some of these projects in Mumbai.

Which projects were these?

One outstanding project is the new airport in Navi Mumbai, which is scheduled to open next year. This airport will significantly reduce congestion at the existing airport in Mumbai and, thanks to its favorable location, will provide better connections to the southern city center. Such projects are crucial for the further urbanization and economic expansion of Mumbai, and many Indian companies are involved here.

The new Mumbai metro is also noteworthy. After years of construction, ten stations on the first line are now in operation. The high quality of the infrastructure in the stations themselves and the modern train sets are impressive. Here, too, not only international corporations but also a large number of Indian construction companies and suppliers are benefiting from government contracts.

One project is the high-speed train between Mumbai and Ahmedabad. What advantages will it bring for the population?

This new high-speed train, which can reach up to 320 km/h at full power, is another milestone worth mentioning. This project will significantly improve economic relations between the two important economic centers and reduce travel time from eight hours to two hours. Particularly impressive was the visit to the tunnel under the area between the center of Mumbai and the city limits. State-of-the-art tunnel boring machines, like those we know in Europe or the United States, are being used here.

Public transportation is at the center of these projects.

Yes, considering India's high population density, this is a hot topic. All these projects show that India not only thinks big but is also able to overcome complex technical challenges. Many Indian companies in the industry, such as Larsen & Toubro, as well as subsidiaries of global corporations such as Siemens India or ABB India, are profiting from this policy.

Large infrastructure projects are often delayed. Is that also an issue in India?

Historically, years of delays in such projects were the rule rather than the exception. But that has changed dramatically in recent years. It is clear that there is a political will to push ahead with such projects. The bureaucratic hurdles have been significantly reduced, and new laws ensure that landowners receive fair prices for their land, which in turn leads to faster sales and more expeditious implementation of the projects.

The measures also appear to be very popular with the population.

Yes, the political commitment to these projects is also rewarded in elections. The current government in Maharashtra, with the capital Mumbai, has recently made significant gains, which can also be attributed to the successful implementation of these important infrastructure projects. These projects not only make everyday life easier and reduce travel times, but also create a lot of jobs.

Which sectors, besides infrastructure, are currently booming in India?

One sector that is also booming in India is quick commerce, a new trend in online retailing. The “quick” refers to the delivery time. In India, this is sometimes not even 15 minutes. The small warehouses for the goods that can be ordered – food, etc. – are located all over the city so that fast delivery is possible. This service has been extremely well received by the Indian population. Providers such as Zepto, Swiggy, and Blinkit are benefiting greatly from this trend. Quick commerce has become an important part of their business strategy and now accounts for a significant share of sales.

Is this trend having an impact on the consumer goods segment?

The big rush for quick-commerce providers means that the many small shops, the so-called mom & pop stores, are selling less. These shops have only a limited range and usually source their goods from large manufacturers such as Hindustan Unilever, Nestle India, or other large food companies, while quick-commerce companies also work with cheaper suppliers. Naturally, the large consumer goods manufacturers are feeling the effects of this. They are currently experiencing weaker growth in India.

India has traditionally been very strong in the IT sector. How is this sector developing at the moment?

The IT outsourcing sector continues to flourish. Demand for IT services is strong, and the implementation of artificial intelligence (AI) tools is increasing. Many companies have extensive data sets about their customers and their behavior but are not yet using them for targeted evaluations. Indian IT companies are taking advantage of this weakness and helping to prepare data so that it can be made usable for targeted AI projects.

What role do renewable energies play in India? Is the transformation making progress?

In the energy sector, India is currently investing heavily in renewable energies – in part to reduce its dependence on oil imports from Russia. In recent years, India has invested a considerable amount in solar energy in particular but wind power is also growing strongly. Due to the rapidly growing demand for electricity, however, India still needs coal-fired power plants. Nevertheless, the trend towards renewables is clear. The fact that solar power is now cheaper than electricity from coal-fired power plants, even without subsidies, is supporting the rethink in energy policy.

Is sustainability also playing an increasing role in the automotive industry?

The Indian automotive industry is now the third largest in the world, after China and the US. Last year alone, 4.2 million cars were sold in India, and yet the penetration rate of 59 cars per 1000 Indians is comparatively low and corresponds to that of the USA in 1918. The electric quota for new cars is still very low at just under two percent, which is mainly due to the lack of a charging-infrastructure. There is already a clear trend towards electric mopeds and scooters, but it will take some time for electric cars.

How do all these developments affect Raiffeisen Capital Management's fund investments?

India is one of the strongest Asian stock markets. In the short term, we see a lot of positive things priced in. The average price-earnings ratio (P/E ratio) in India is currently 25, which is a high level. We have therefore recently been a bit more cautious about purchases in our funds and have taken profits several times in the last few months. However, we have a very positive view of the market in the medium to long term, as the country has also implemented many structural reforms that will further support economic development. The positive sentiment among the population and companies reinforces this confidence. We are currently experiencing a virtuous cycle in India that promotes both a sustainability and prosperity – a promising combination for responsible investing.

The fund Raiffeisen Sustainable EmergingMarkets Equities exhibits elevated volatility, meaning that unit prices can move significantly higher or lower in short periods of time, and it is not possible to rule out loss of capital.