On Tuesday, we talked about a “Trump-proof” way to play China’s exploding social media and e-commerce markets.
I told you I would follow up soon with another tech-based “frontier” investment.
Today I’m keeping that promise.
With 1.3 billion residents, India is the globe’s second-most-populous nation. And it could surpass China in as little as five years.
India logged GDP growth of 7% in last year’s fourth quarter. That beat forecasts by 10%. Even if that were to slow by as much as 20%, India’s economy would still be expanding twice as fast as that of the United States.
In just the past decade, India’s $2.2 trillion economy has leapt past Italy, Brazil, Canada, South Korea, and Russia. That means it’s now the globe’s seventh-largest economy – and it could move up to fifth place by 2020.
That kind of growth makes India one of the most enticing frontier investing markets today. And we know high tech is set to play a central role in this massive opportunity.
While India has a rich history of economic and business growth, it’s equally well known for its “threat landscape.” Corruption, crime, political instability, and terrorism all scare away many investors.
That’s why I’ve searched high and low for a way to get in on India’s ferocious tech growth – a way to get on the “sadak to wealth” – without exposing ourselves to those sorts of risks.
But that still offers hope of quick triple-digit gains…
And I’ve finally found it…
India signaled a major push into high tech when Prime Minister Narendra Modi visited the United States in 2015, the first such trip by an Indian head of state in three decades.
He visited Silicon Valley to talk about his Digital India plan, which he said was an “enterprise for transformation, unmatched in human history.”
Since then, India has moved quickly to digitize the entire economy, which is starting to have a colossal impact on the global tech sector.
It hasn’t been easy. Modi’s push to remove currency from circulation, to clamp down on the black market, and to streamline government agencies brought a lot of push back.
But his mission has been mostly successful, no mean feat in a nation that has long resisted major change.
Every citizen is now part of a national database, and they use their IDs in all their interactions with the federal government. Mountains of paperwork are disappearing as India provides higher quality of services at lower costs.
Modi outlined the three pillars of his plan…
- A sharp increase in the country’s digital literacy, especially in rural areas.
- The buildout of superfast web connections.
- And a big push to create jobs in hardware, software, and tech services.
The Digital India efforts have lured in major spending from Silicon Valley. Alphabet Inc. (Nasdaq: GOOGL) is rolling out Wi-Fi access in 500 train stations. Microsoft Corp. (Nasdaq: MSFT) is making India a key hub for its global cloud-computing platform.
But no major tech firm is placing as large a wager on Digital India as Amazon.com Inc. (Nasdaq: AMZN)…
The World’s Fastest Growing E-Commerce Market
India needs to make up for lost time. In 2016, its e-commerce sector racked up just $30 billion in online sales, according to Barclays. That’s well below the $718 billion take in China.
But Amazon CEO Jeff Bezos sees a chance for India to match China’s growth. Barclays predicts Indian e-commerce will grow 21% each year through 2020, reaching $66 billion – and that it will keep growing at a double-digit pace in the next decade as well.
Much of this growth will come from a surging embrace of the smartphone. India now counts 250 million smartphones in use and 375 million people online. Those figures are expected to double by 2021, according to Barclays.
Amazon is ready for that surge. It has pushed to triple the number of products to buy on its Indian site in just the past 18 months. You can now buy 80 million items from 120,000 distinct third-party sellers.
E-commerce comes at the right time for India. The nation has yet to develop a large-scale retail infrastructure. For many consumers in second- and third-tier cities and villages, online shipping enables them to skip traveling vast distances to buy needed household goods. It allows them to enter middle-class consumer culture – without a Target or Walmart in town.
As an added lure, Amazon’s prices tend to be 10% to 15% lower, even after accounting for shipping, than India’s inefficient brick-and-mortar stores.
In the past, doing business in India was quite a challenge thanks to severe foreign-ownership restrictions.
But in March 2016, the Indian government allowed for 100% foreign investment for e-commerce businesses operating as marketplaces domestically.
With those new laws in place, Amazon is moving quickly to build out a national footprint. It now operates 25 massive fulfillment centers, 170 distribution centers, and four delivery stations in India.
Its newly beefed-up footprint means Amazon can deliver same-day by ground to the cities that generate roughly 70% of India’s GDP. Not bad for a firm that had zero presence in India just four years ago.
Getting goods to the other parts of the country is more of a challenge. So Team Bezos has built an Amazon Transportations Services network in India, with last-mile delivery using vans, motorcycles, and scooters to get packages directly to customers. And customers can pick up their packages in centrally located lockers via a program called Kirana Now.
The firm has even seen great success with the July 2016 launch of Amazon Prime in India.
As I said, Bezos is using every tool in his arsenal to ensure dominance in this fast-growing market.
With a $430 billion market cap, Amazon trades at roughly $900 a share. Over the past year, it has soared 43.5%, three times the growth of the S&P 500 over the period.
With share-price gains like that – and a supercharger like India behind them – you could see triple-digit gains before 2020.
Amazon truly offers a great way to ride this “frontier’s” explosive growth to long-term market-crushing returns.
I’m talking about the sort of gains you’ll one day be able to spoil your grandkids with.
See you next week.