Our two-part series on “India in Person” concludes with this discussion on innovation, data, and tech disruptions.
John Natale: I’m John Natale, and you are listening to the podcast, On the Trading Desk®.
Today’s conversation features highlights again from the publication, Market Traveler, created by Wells Fargo Asset Management.
For those of you who listened to Part 1 of our series about India, welcome back. We figured that we would provide some additional insights on both innovation and data used in India, and then how tech disruptions affect different sectors across the country.
Of course, with us today again is Alison Shimada, Portfolio Manager, and Mandeep Manihani, Analyst, from the SF Global Emerging Markets Equity Team.
Alison, thank you for coming back on On the Trading Desk®.
Alison Shimada: Thank you, John.
John: And thank you for joining us again, Mandeep.
Mandeep Manihani: Thanks, John. Good to be back.
John: Let’s talk about innovation in India. Alison, you took part in another big conference during your trip to India where the heavy hitters of India’s private equity investing community gave their outlook for technology-driven transformation in the country.
It seems like on the minds of everyone was data. As you both noted in Market Traveler, consumption of goods might be sluggish, at least currently, but the consumption of data by Indian consumers is booming.
So, Alison, I’ll ask you this: How does India’s data revolution affect the prospects for various Indian sectors, whether we’re talking about IT, telecomm, or finance?
Alison: That’s a really interesting question, John.
I think that the fact that India is quite advanced in terms of the IT sector lends itself to fast adoption of IT services, and in the case of consumers, I think it has several implications.
Number one is that it does lead to greater inclusion of lower socio-economic classes to be able to access financial services. A lot of people have a bank account, but they don’t use it very much. Online banking will allow people, in particular in remote areas, to access services from banks and transfer money and do all sorts of things they wouldn’t be able to do normally because they couldn’t just reach the physical bank. Not only that, but people will use more services from banking, and I think it will also lead to a lot of better financial education on the part of consumers about various banking products. So I think that’s important, as more and more Indians move into the middle class.
Another aspect of efficiency is that leads to greater efficiency in the back office for the financial system and the ability to leverage that into lower costs on the part of, in particular, the banks. So I think that using data, using big data, understanding, on the part of the banks, more about their consumers and connecting them more to consumers will be a big benefit.
I think that the other thing is that it does enable small businesses to also become part of the greater economic system in India by enabling mobile payments and things that may encourage more consumers to use the services that they provide, even at small businesses. Better tracking of data, they’ll understand more about what they sell that’s popular and what’s not popular, what items they can get rid of. So just in terms of better information and running a business, it helps a lot.
And I think the final thing is that in terms of entertainment, India has a very large entertainment industry and data will enable the greater proliferation of entertainment through YouTube, through various channels, and I think that it will probably already encourage a large industry, as it is already, to move forward.
So there’s a lot of implications, almost all of them positive, and I think it’ll be an interesting development in India.
Mandeep: Yes, and if I might just add on the financial sector in India, that has been a leading adopter of technology.
Digitalization, as they call it, has been an important driver of cost efficiency for the sector. Transactions have been moving out of branches at a rapid pace and the adoption of online banking should only accelerate with rising smartphone penetration. So this will make it easier for banks to reach and engage customers about financial products and services.
I believe this is important as a significant number of Indian consumers do not take advantage of formal credit facilities. The use of data and technology has also helped in assessing and managing risk better. So over the population of 1.3 billion, we believe technology will only make it easier for the country to make financial services more accessible for the broader population.
John: That’ll be interesting to see play out, too. You spoke of financing. Just real quick, I was wondering in terms of the companies that are domiciled in India— the ones that were started in India—what’s the secret to financing these days? Are they turning to internal CapEx? Is it private investing? Perhaps is it through acquisition and partnership? What seems to be most prominent these days?
Mandeep: Yeah, John. A lot of new startups have begun to emerge in India as they’re trying to take advantage of inefficiencies in the system.
This is something we also saw in our trip to the mall, where there’s focus on natural products, there’s a focus on more organic stuff, so startups have ranged from delivery services to online market platforms, and there is a lot of appetite to fund these startups from international investors.
In my opinion, with a good idea, startups, which are taking advantage of inefficiencies in the system and are tech-driven, there is generally no shortage of capital. And the market is still not quite there, where these companies can come and be public companies, because that brings them under more scrutiny. So for the time being, as the companies continue to deliver strong growth, they continue to be financed privately for their growth needs.
Now as far as established companies are concerned, we are talking about a wide range of companies. But a lot of fast-growing companies, especially banks, they have been able to access the public markets to raise equity capital. And, as far as other older economy companies are concerned, we can see them accessing both equity and also the bond markets. So it’s a mix of financing.
In general, I would say that startups is where private capital is of no shortage, and well-established, well-run companies generally don’t have any difficulty in accessing public markets to raise financing for their expansion for both organic and inorganic requirements.
Alison: I think I would add to that that I think the main challenge going forward really is not necessarily financing since, as we talked earlier, there’s such an abundance of large firms, public and private equity, in India, as well as just global financing seems to be quite abundant still, even though with a slight slowing of the global economy. So there’s still enough money to go around for good ideas.
I think the main challenge for smaller companies will just be to be able to grow and manage that growth efficiently and gain the scale with the first mover advantage and services that remain relevant. And usually in any economy, it seems to me there’s one or two winners. We have a lot of people who try to get there and but in the end, even with a large country like India, it might have only a handful of companies in any particular area that really make it.
John: Well, Alison and Mandeep, thank you for spending the extra time with us. This is been another very fascinating episode On the Trading Desk and I think that our listeners will really benefit from learning about some of these on-the-ground insights that you captured on your trip to India. So Alison, thank you again for being on On the Trading Desk.
Alison: Thank you, John. I hope it’s helpful to everyone.
John: Absolutely. And Mandeep, thank you for joining the podcast, too.
Mandeep: Thank you, John. It’s a pleasure.
John: Well, that wraps up our follow-up episode of On the Trading Desk with Alison Shimada and Mandeep Manihani talking about their travels in India. If you’d like to read the full Market Travel piece that they wrote, you can find it at http://on.wf.com/61281yRL2. The title – India Up Close: A Transformation Story. To our listeners, thank you for taking the time to listen. Until next time, I’m John Natale. Be well.