Speaker
Related Articles
India remains one of the most dynamic opportunities across Sands Capital’s portfolios. In this conversation, Sr. Director Kevin G. Murphy, CFA, and Research Analyst Brian Crofton, CFA, discuss how structural reforms, a shift toward private-sector financial institutions, and the evolution of household consumption are reshaping the country’s financial services landscape. With more than a decade of on-the-ground experience in India, Brian shares insights into the secular trends driving long-term growth and why selectivity is more important than ever.
Transcript
Why India Matters to Our Investment Approach
Kevin Murphy: Hi. My name is Kevin Murphy. I’m a senior director here at Sands Capital. Today I’m speaking with Brian Crofton, CFA, an analyst who covers our financial services industry and who has spent a considerable amount of time on the ground in India over the past few years.
At Sands Capital, we’ve been investing in India and traveling there for more than a decade. Today, it remains one of the most dynamic investment opportunities across our portfolios. In fact, in our Emerging Markets Growth strategy, India represents our largest overweight relative to the benchmark.
We’re going to talk with Brian about the country’s structural dynamics and the macroeconomic environment that we believe make it such an attractive investment. Then we’ll dig into what Brian has seen on the ground and how things have changed over the years.
So, Brian, with that as context, thanks for joining me. Why India? Can you give us the big-picture view of why this market is so interesting to you?
Foundations of India’s Growth Story
Brian Crofton: As you mentioned, we view India as one of the most compelling long-term secular growth stories within emerging markets. There are several reasons for that.
First, demographics. India is now the world’s most populous country, with a population that is both growing and relatively young. The average age is 28, and two-thirds of the population is of working age.
Second, we’re seeing a rising middle class, which is expected to double over the next 20 years. This supports rising incomes, wealth accumulation, and increased consumption.
All of this is happening alongside supportive policy reforms. Since the early 1990s, India has been liberalizing its economy—an effort that has accelerated under Prime Minister Modi’s government. We’re particularly excited about progress in industrialization, digitalization, and the formalization of the economy.
We’ve also been impressed with India’s institutional quality over time; things like tax compliance, regulatory transparency, and ease of doing business are improving.
These factors have supported GDP growth averaging 6 to 7 percent annually, which outpaces most of the G20, while inflation has remained relatively low and stable.
India also provides diversification for portfolios. It’s primarily driven by domestic demand, unlike other markets that are more commodity- or export-oriented. And with global supply chains shifting, we’re seeing companies diversify away from China and toward India, adding to the tailwinds.
That said, not all companies benefit equally. Selectivity is key. That’s why we spend time on the ground, meeting with management teams and conducting bottom-up research to identify the businesses best positioned to create long-term value for shareholders.
Shifts in Consumption and Opportunity
Kevin Murphy: Great. Take us back to the early days of our investments in India. What’s changed over time? Which businesses were attractive then and may be reaching maturity now? And what’s emerging as interesting today—maybe in fintech or financial services?
Brian Crofton: Great question. We see a shift in household spending from more mandatory to more discretionary categories. Earlier on, many of the attractive opportunities were in nondiscretionary sectors. Now, with the rise of the middle class and increasing affluence, discretionary consumption is becoming a more powerful growth driver.
At the same time, financial services remain a long-term opportunity across this transition. Over the past 30 years, the sector has liberalized significantly, leading to greater financial inclusion and the development of a private sector. Still, there’s room for growth.
Roughly a fifth of the population remains unbanked. Two-thirds still don’t use digital payments. Most credit and deposits are still held by state-owned banks. But private banks are steadily taking market share, thanks to better customer service, faster credit decisions, and stronger risk management.
Digital financial tools—used by both fintechs and incumbent banks—are lowering costs, expanding reach, and enabling more personalized services. These innovations are particularly attractive to India’s young, mobile-first population.
Impacts of Government Reform
Kevin Murphy: Let me pivot for a moment. One of the bigger disruptions in India’s economy came in 2016 with demonetization. That effort aimed to shift transactions from the informal to the formal economy. Should we interpret that as supportive of a more modern banking system?
Brian Crofton: Absolutely. Demonetization, along with the rollout of goods and services tax (GST) reforms, helped accelerate the economy’s formalization. When more transactions happen through formal channels, there’s more money in banks and more credit that can be underwritten. That dynamic continues to expand the total addressable market for private financial institutions.
Expansion of the Private Sector
Kevin Murphy: Where are we in that transition from state-owned to private sector banks? Are we near the end of that cycle?
Brian Crofton: We’d say it’s about 60/40 in favor of state-owned banks. Given the performance gap in customer service, credit underwriting, and operational efficiency, we think there’s still a long runway for private banks to gain share.
Influence of Political Leadership
Kevin Murphy: Let’s talk politics for a moment. We recently had a more competitive-than-expected election. If power were to shift, could that disrupt the reforms we’ve seen?
Brian Crofton: It depends on the makeup of the new administration. There’s been a slight shift toward social spending and consumer support, rather than structural reforms. That changes which companies are likely to benefit. For example, the policy focus may increasingly favor consumer discretionary businesses, which aligns with our focus on selectivity.
Opportunities in Domestic Manufacturing
Kevin Murphy: Let’s shift away from financial services, though I know it’s deeply interconnected. What are some of the newer opportunities you’re seeing?
Brian Crofton: One major trend is the government’s “Make in India” initiative, aimed at building a domestic manufacturing base. Manufacturing is a key source of well-paying jobs in many emerging markets, and India needs that for its large and growing workforce.
This isn’t just about replacing imports—it’s about creating globally competitive manufacturing. We’re seeing progress in areas like automotive, renewable energy, and electronics. We’re actively researching businesses that could emerge as leaders in these sectors.
India’s Position in a Shifting Trade Environment
Kevin Murphy: Thanks, Brian. Before we wrap, I’d be remiss not to ask about recent tariff news. How could that impact India’s economy?
Brian Crofton: It’s a fluid situation, and we’re monitoring it closely. On an absolute basis, tariffs are negative for global trade. But relatively speaking, India is in a better position than many of its peers in Asia, given its lower average tariff rates.
This could actually accelerate supply chain diversification trends we were already seeing. If companies continue to move manufacturing to India, that reinforces the “Make in India” dynamic.
Still, we expect headwinds and tailwinds across different sectors. Selectivity remains key as we assess our current holdings and new opportunities.
Focus on Domestic Demand–Driven Businesses
Kevin Murphy: From the beginning of our investments in India, we’ve emphasized businesses benefiting from strong local demand. That’s a little different from the low-cost, export-driven companies that many local investors focus on. Can you speak to that?
Brian Crofton: Absolutely. Many of the key secular trends we’ve been investing behind—economic formalization, middle-class expansion, financial inclusion—are fundamentally domestic stories. They’re influenced by exports and global trends, but their core growth drivers are internal.
As long as the domestic economy continues maturing, we believe these businesses are well positioned for long-term growth.
Local Insights Supporting Global Strategy
Kevin Murphy: Thanks, Brian. That was a great discussion. You provided meaningful insight based on your time in the country and years of experience investing in this economy. Hopefully, our audience has a better understanding of our approach to investing in dynamic markets like India. You can read more about the opportunities we see in India at sandscapital.com, where we recently published a piece titled Riding India’s Digital Wave.
Disclosures:
The views expressed are the opinion of Sands Capital and are not intended as a forecast, a guarantee of future results, investment recommendations, or an offer to buy or sell any securities. The views expressed were current as of the date indicated and are subject to change. All investments are subject to market risk, including the possible loss of principal. International investments can be riskier than US investments due to the adverse effects of currency exchange rates, differences in market structure and liquidity, as well as specific country, regional and economic developments. Investments in emerging markets are subject to abrupt and severe price declines. The economic and political structures of developing nations, in most cases, do not compare favorably with the US or other developed countries in terms of wealth and stability, and their financial markets often lack liquidity. Because of this concentration in rapidly developing economies in a limited geographic area, the strategy involves a high degree of risk. In addition, the strategy is concentrated in a limited number of holdings. As a result, poor performance by a single large holding of the strategy would adversely affect its performance more than if the strategy were invested in a larger number of companies. The strategy’s growth investing style may become out of favor, which may result in periods of underperformance.
GIPS Reports found here.