Christmas has come early for the bank’s shareholders with the decision to slightly increase the 2024 dividend – despite a single-digit decline in the net profit and cash earnings.
Beating the market benchmark is never easy, with 72 per cent of Australian actively managed global equity general funds trailing the S&P World Index in the six months to June 30, 2024. Domestic equity funds performed slightly better, albeit against a significantly lower bar set by the S&P/ASX 200 Index.
China’s loss, India’s gain?
Since COVID-19, the relationship between Australia and China has become more frosty with the Chinese cutting back on trade with Australia. Australian companies with business operations in or exporting to China have been impacted by the increasing opaqueness in the relationship between the countries. However, the trade relationship with China continues to remain significant for Australia.
Globally there has been a recognition that at 30% of worldwide manufacturing, China is too dominant in supply chains, which links business and trade. Other alternatives offering scale, value, technology, and governance are sought as alternatives, with India emerging as a possible candidate to win some business on an incremental basis. India is unlikely to be the next China from a scale perspective, but it does offer some advantages due to its own fundamental tailwinds and demographics.
What makes India an attractive partner?
India is already the world’s fifth largest economy, with an entry into the Top 3 beckoning over the coming decade. This is driven by India’s demographics – a significant, youthful, and entrepreneurial population, which is propelling its economy through a need for infrastructure, consumption, and technology.
It is this very demographic which is attractive to the rest of the world. India’s consumers, a substantial component of whom are aged between 16-50, are more likely to demand more products and services as their wealth rises.
Given the rule of law (English legal system), democratic political system and improving ease of doing business (reduced bureaucracy, lower logistics costs, and simpler tax system), foreign businesses like Facebook, Amazon, Walmart, Google, Samsung, and Apple have all sought either to establish a manufacturing capability in India or to joint-venture with an Indian firm to access local consumption, manufacturing capability and build win-win partnerships.
Recent Foreign Direct Investment in India
From April 2000 to March 2020, India has received US$470 billion ($618 billion) in foreign direct investment, indicating that India’s improving ease of doing business and relaxation of foreign ownership (liberalising) norms are starting to have an impact. In the year ending March 2020, FDI was US$50 billion ($65.8 billion). In the first six months of FY21, FDI is already running at US$42 billion ($55.3 billion). Most of the flows are coming in education, technology, real estate and communications. The Government also continues to liberalise coal-mining, defence and contract manufacturing, seeking privatised strategic partners.
An Example – Reliance Industries
India’s largest listed company, Reliance Industries has a market cap of US$175 billion ($230.3 billion), and its chairman and managing director, Mukhesh Ambani, is now one of the world’s top ten richest people. Reliance Industries consists of three core activities; petrochemicals and refining (65%), communications (25%) and retail (10%). India is a significant oil refiner and Reliance owns the largest refinery in the world. However, it’s the appeal of its communications business which has really set valuations ablaze.
Established in 2016, Reliance Jio has onboarded more than 400 million subscribers to its mobile communications platform; and since COVID-19 it has received investments of about US$20 billion ($26.3 billion) from Facebook, Google, TPG, Intel, Qualcomm, General Atlantic and the who’s who of the private equity industry (such as KKR, Silver Lake, Vista) for just 35% of Reliance Jio. This highlighted the significant recognition of the opportunities in the global consumer base and India being identified as an emerging powerhouse in terms of having a demographic of young, digitally savvy and enabled, consumption-hungry population. To provide an example of that, Facebook owns Whatsapp, which is a messaging service that has 440 million customers in India – its largest market by far. Entry into India by JV with Reliance allows greater access to the world’s most desired consumer base going forward.
Australia’s Opportunity
Australia’s two-way trade with India is about A$31 billion compared to well over A$230 billion with China. Australia has a significant opportunity to benefit from India’s demographics. Be it through the diversion of sales of wine and beer to India; edutech and fintech, given Australia’s significant progress in financial services; or agritech, which is another opportunity where IP and knowledge can be shared in partnership. While coal, uranium, and iron ore are the more obvious and low-hanging-fruit opportunities, Australia needs to expand its thinking through partnerships/JVs with Indian-domiciled firms who can benefit from a global perspective.
