EMERGING MARKETS - MONTHLY 2019 - Baillie Gifford
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EMERGING MARKETS – MONTHLY
2019
© Bob Thomas Sports Photography/Getty Images
I touched down in India for my first visit a little over 12 months At the other end of the complexity scale, the BJP undertook a
ago. To my surprise, I managed to leave around a week later, project to build tens of millions of toilets across the country.
having put on weight, with worries about ‘Delhi Belly’ firmly This may sound less weighty than many of their other reform
abated. Amongst the other common misperceptions that I efforts, but the reality is that household toilet access has
managed to shift, was the view that India is far behind its increased from c.40% to c.90% in the five years since Modi
emerging peers in new technologies. As soon as I left the airport took power and this should have positive lasting implications
I saw billboard adverts for various online video streaming for hygiene, safety and disease control. Which of these two
services, the most common being Jio TV, and throughout the reforms has had the biggest impact on society?
week I realised the binge-watching culture on mobile video was
like I’d never previously known. Indians consume more data per Land and Labour reform should be next in line. On both counts,
person than Chinese, US or UK citizens, often using short form Modi has faced difficulty so far, but if it were easier to acquire
video services more like search engines. Cricket is of course a land and to hire/fire people, businesses would see long term
very commonly shared passion across the country and the benefits. Ease of doing business would doubtless improve even
management teams of media companies are all understandably more so than it already has under Modi. The reality is that Modi
keen to ensure that the Indian Premier League is available on has struggled with his aim to split 44 labour codes into just four,
their mobile video services. The tournament is even beginning to labour costs have more than doubled over the last five years,
rival the English football league in terms of its economic might. hiring costs have hiked, and this has hit labour intensive
economic sectors.
It should come as no surprise that the rapid rise of mobile video
consumption means that politicians are taking to this medium In truth though, these reforms are probably less important in the
to capture the attention of voters, particularly millennials. India near term for voters than are national security issues, which is
is about to witness the largest democratic election that the why the recent airstrikes over Pakistan are even more significant
world has ever seen. But even with technological advances, the than they first appear. In February, for the first time in nearly half
April-May vote will be a tremendous logistical feat. Such are the a century, the Indian air-force launched air strikes on Pakistan, in
complexities of organising a vote for the ‘Lok Sabha’ (the House a fight over Pakistani terrorist activity in the shared region of
of the people), covering over 10% of the world population, the Kashmir. On the face of it this has been a retaliation effort after at
election will be split over seven phases from 11 April 2019 to 19 least 40 Indian security staff were killed, but equally it is being
May 2019. This is incomparable to any other election globally. viewed as something of a move to onside the patriots. The
Economist, for instance, ran a recent article entitled “Air strikes
Since winning the last election in 2014, Modi’s government on Pakistan may win Narendra Modi India’s election”.
policy has varied wildly by level of sophistication and success
of implementation. At one end of the scale, a complex reform of
the old cumbersome goods and service tax system has been
enacted, meaning around 400 tweaks to the tax system, fewer
tax rates, and the tax take has increased as a result. Sceptics
argue there is still much room to go however.
This presentation is solely for the use of professional investors and should not be relied upon by any other person.
It is not intended for use by retail clients.
Emerging Markets
“It should come as no surprise that the rapid rise of mobile video consumption
means that politicians are taking to this medium to capture the attention
of voters, particularly millennials.”
National security relates not just to defence in the modern era
however, but also to the protection of domestic businesses
from overseas tech giants. This is hugely important as India’s
share of internet users rises from still low levels of penetration.
It is perhaps most important in ecommerce, as Indians have
shown a keen propensity to spend online, and the market is
expected to grow to over $200bn by 2026, many multiples
larger than today.
In December, new rules were announced in strong support of
domestic businesses. Amongst other things, they state that
ecommerce platforms like Amazon cannot have a say on
pricing of goods sold on them, which may end the largescale
sales events that theoretically allow them to outcompete
domestic sellers who don’t have the scale and balance sheets
that they do.
One of the key beneficiaries of the new rules designed to help
local businesses may be Reliance Industries, a key holding in
the portfolio. It now has over 150m users on its Jio mobile
network and is also the country’s largest retailer. It hopes to
combine these two powerful attributes to stitch together a large
ecommerce network. Reliance has been involved in government
consultations on ecommerce where foreign players have not.
Modi aspires for India to be a US$10trn economy by 2030. To
do so, he must first retain power, and then there are several
balances to strike. For instance, he must ensure that positive
domestic consumption continues at the same time as inflation
remains under control. This has been done well so far. For
investors however, the disappointment in recent years has
been that manufacturing and exports have shown little
movement. As well as this, India is towing a fine line between
protecting domestic interests, whilst being open to FDI. As
India grows over many years to come its challenge will often be
to manage such conflicting priorities. We expect this process
of development to throw up attractive opportunities for long
term investors.
22019
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