Mission to Mumbai: on-the-ground investment insights

In the latest episode of the Emerging Market Equities podcast, Nick Robinson talks with Catriona Macnair to discuss her recent trip to India. They cover topics such as optimism in the market, the banking and financial sectors, EVs, and more.

Podcast was recorded on 21st March 2025

Transcript

Nick: Hello, this is Nick Robinson from Aberdeen and you're listening to the Emerging Markets Equity Podcast. Together with our expert guests we'll dive into the driving forces behind emerging markets and uncover the opportunities that are shaping the future of this exciting region. So at Aberdeen investment trips are a key part of the process. Even though shifting to teams and Zoom meetings has its advantages, it can't replace go to a country for a week and completely focusing on its companies to give a sense of what's really going on, which is something you just don't get in the virtual world. Meeting company leaders face to face, seeing their headquarters and looking at their operations, it all helps build a picture of what type of company this is and what their philosophy towards running the business. So, with that in mind today, I thought I'd ask my colleague Catriona Macnair to come on the podcast. Cat runs are emerging market fund that's aligned with the UN's Sustainable Development Goals, and she also helps manage our Global Impact Fund. She's just returned from an investment trip to India. So given the selloff in this market in the last six months, I thought it'd be great to get her on-the-ground insights. So Cat, welcome back to the podcast. It's great to have you back on. 

Catriona: Hi, Nick, thanks very much for having me back again. 

Nick: Brilliant. Well let's talk about your trip to India. So, perhaps you could just kick off with a bit of an overview of the trip, where you went within India and what you were doing?
 
Catriona: Sure, yes. I spent one week there, I was traveling with an Indian colleague from our Singapore team who helps to run the Aberdeen Indian Equity Funds. These days, India makes up about 17% of the emerging market and Asia Pac or Asia Pacific ex Japan indices. So it's a market our team visits fairly regularly, and we typically split our time equally between seeing existing investee companies to understand how their prospects have evolved, and also new idea generation. So we spent three days at an enormous conference, hosted by a local brokerage in Mumbai, which had a thousand attendees, 750 locals and about 250 international investors. So a really, really good mixture. And then we had a day of bespoke meetings in Delhi, again, seeing a sort of balance of longstanding holdings and new ideas and finish off the trip with a very different day actually in Bangalore, zeroing in on India's booming quick commerce segment, which was every bit as dynamic and mind boggling as it sounds. Three cities in five days is pretty ambitious. I was a bit skeptical we would pull it off in all honesty, but turns out my colleague was spot on. Uber was everywhere. The low cost carrier airline Indigo was enviably punctual. I just wish you'd had a bit longer to explore. I suppose that's always the way with these work trips.

Nick: Yeah, I mean, that sounds brilliant. Actually, I'm really excited. I'm, subbing in to an India trip in a couple of months time because a colleague of ours has had some visa issues, so I've kind of last minute had to step up and, really looking forward to it. 

Catriona: Lucky you.

Nick:  So I've been listening very carefully to what you're saying. What was your sense of the overall feeling on the ground when you were there? Last year was a pretty volatile year, or a fairly key year for India in terms of the election and, you know, the subsequent economic and political announcements. So how was the atmosphere? 

Catriona: Yeah, India is at a very interesting juncture and so after sort of three years of bull market returns and extraordinary and I think now we can see in hindsight really very extraordinary GDP growth about 8%. The market's taken a bit of a breather let’s call it starting for the second half of calendar 2024, in the early half of calendar 2025. So, there was a real palpable sense of caution amongst those local domestic investors, particularly at the conference, probably not helped by a weakish season of a third quarter 2025 results, which in India takes you up to the end of end of December. And then you have the fourth quarter, which takes up the end of March. The calendar, fiscal year is a little bit different. So investors big question really were centering around growth and the sustainability of that growth. Now, I'd say the cyclical downturn that we've seen has been largely policy led. So the government's been in fiscal consolidation mode really post-pandemic and they've successfully been coming in below their annual spending targets to the tune of about 5 to 10% to try and rein in the fiscal deficit, which was sitting in excess of 9% a couple of years back. Recently, government CapEx has also been disappointing, undoubtedly disappointing, and I think they've had their eye off the ball in that regard. They're focused very much in terms of the election and election outcomes that we saw in and June 2024, which, incidentally, delivered a slightly narrower lead than even the incumbent BJP party had expected. And then October/November, the focus is on some large state elections. So, again, keeping government CapEx on ice was certainly cooler than the market perhaps would have liked. What I would say, though, is that it feels transitory. And I think that's really important. So policymakers are starting to stimulate demand. We saw that in the recent budget, which is actually Modi's first budget of his third term. And it was almost entirely targeted at boosting domestic demand. So there were some cash handouts, tax cuts for lowest income earners, all designed really to help boost urban consumption. Actually, rural consumption has already been recovering a little bit. And then thanks to falling inflation, we've seen the Reserve Bank of India or the RBI cut interest rates for the first time in five years, again with a view to supporting domestic demand. So there are signs that things are beginning to recover. What I would say is that the RBI unfortunately has cut its GDP growth expectations. So we're now looking at 6.4% for 2025 and only marginally better for 2026. And that's pretty much in line with our Aberdeen House View. But one of the bank CFOs that we spoke to made the point that he thinks this is a little bit overly bearish and perhaps estimates are likely to undershoot, in the same way that overshot on the way up, so let's see. Some early indications anyway that the market could be past the worst. So a good time to have been in India perhaps for some early stage bottom fishing, if I can call it that. 

Nick: When you look at how the market itself has actually performed has there been much divergence in terms of the performance of particular companies on the markets. And if you see that any divergence in terms of the earnings performance of companies as well, is it limited to certain sectors, or is there a kind of broad themes that emerge?

Catriona: Yeah, I think the sector that struggled the most of late, I would say is a sort of made in India style CapEx related companies, where Modi's made in India promise hasn't really been delivering in terms of jobs and growth. And that comes back to that CapEx point, that sort of government CapEx point, where manufacturing accounts for about 13% of India's gross value added, which is quite a lot lower than you might expect. So boosting manufacturing, I think, is key to providing jobs and raising incomes, and certainly a few of the CapEx names that we look at disappointed in the third quarter, where there's likely to be slightly brighter spots will be around consumption. So, we saw the banks delivering actually pretty decent results, which is a sort of a proxy really, in terms of rural consumption or certainly rural retail appetite. And against a backdrop of lower inflation, lower rates with income tax cuts, I was talking about in some cash handouts, those results were fine. I would say we're pretty decent into the end of calendar 2024 and should indeed be better going forward. But the real bright spot is certainly from what I had seen was around healthcare for actually quite a few of the health care companies, small cap in particular, were delivering really exceptionally strong or very consistent results, benefiting from a bit of a land grab phase, I suppose, in the hospital sector in particular. So that sector stood out to me.

Nick: Okay. That's yeah, that's interesting. I mean, I think that slightly reflects some of the changes we've seen in India in the past decade or so. In that is my impression and correct me if I'm wrong, but my impression is there's just been, an awful lot of new companies listed in India, which has really broadened about the investment opportunity. So, you know, healthcare was a hardly existed a decade or so ago in India in terms of investable companies. But now you've got all these kind of hospital and pharmaceutical companies that you can invest in. So that's quite interesting. 

Catriona: That's right. And especially down the sort of market cap chain that quite a few small cap diagnostic businesses, children's only hospitals, there's been a few moves from the private equity space into the listed equity space as well. So quite a lot of activity within Indian healthcare. 

Nick: Yeah, and you mentioned the banking and the financial sector. I mean, that's been a very large part of the Indian benchmark, and there's been quite a lot going on there in the last couple of years. We've had some generational changes in terms of management teams of banks changes as people have retired and step back and new people have come in. And then we've also had these liquidity issues where banks have essentially kind of been a bit short on capital because of the very strong loan demand we've seen because of the growing economy. So that's really slowed things down a bit. Yeah, what was your impression from speaking to the banks in terms of how things are evolving there?

Catriona: Yeah, there's been a lot going on. And I think the liquidity tightness still persists, but is certainly getting better. So I was broadly reassured by our banking meetings, monetary policy remains fairly tight, but I mentioned about the Reserve Bank of India making their first interest rate cut in five years. So we are starting to see more of a move towards expansionary policy or a more expansionary backdrop. From the banks that we spoke to, there's likely to be a sort of shallow interest rate cycle from here. So private sector banks are expecting another two cuts or thereabouts in calendar 2025, which would be probably 50 basis points, expecting two lots of 25 basis points. But what I would say is that transmission to the sort of real economy is actually quite limited, that only retail loans are actually linked to that base rate. So the wider economic transmission will be a little bit limited. And it's really the liquidity side of some of those open market operations by the Reserve Bank of India that are likely to move the dial in terms of resolving the liquidity issue that you mentioned. So actually, again, they've been fairly proactive. Policymakers have been using that tool to try and manage, market liquidity. And there was another injection in another US dollar rupee swap option just earlier this week. So liquidity certainly moving in the right direction. But it's it'll be slow and steady I would have thought. What was encouraging from a regulatory perspective is that the banks were almost uniformly upbeat around the new RBI governor, who they outlined as being very constructive, very proactive. They didn't criticize crucially, didn't criticize the previous governor, but outlined that he's very receptive to market feedback. So sort of implying perhaps more so than the predecessor. On the funding side, there's been a bit of a structural shift amongst households and probably ties in with the point we were discussing earlier around that really bullish market environment that we've seen. So a lot of households have been moving their own personal balance sheets away from bank deposits to investments, and there was a noticeable policy within the budget in February of this year to allow low income savers to now earn a certain portion of deposits tax free. So that is really a policy designed to try and pull deposits back for mutual funds and try and help to shore up banks funding sites through deposits, which I thought was positive. One thing's for sure that the Goldilocks period, that's an expression the CFO used, one of the private banks. The Goldilocks period on the asset side is over. So looking at that bureau data, some of the products are starting to struggle a bit. I think we saw that start to materialize on the unsecured side about 12 to 18 months ago. But other products are starting to show little pockets of pressure. And we would expect that to move through from the unsecured to the secured book and then right through the sort of the full spectrum of loans. And there's still been some exuberance in loan granting by public sector banks, albeit relatively more contained than we might have seen in previous cycles. And that, again, is a key point. Unlike previous boom years, where banks were perhaps a little bit more carefree in their lending, this time, actually, banks, both public and private sector, like, the regulator, have been considerably more prudent. So although there might be an asset quality cycle deterioration from here, it's expected to be fairly shallow and fairly benign. So I'd say the banks are in something of a transition year, but there's room for upside surprises, if anything. And certainly in the private banking space where they've been prudently managing their loan book and have evidently been able to attract household deposits, I think there's room for some surprise. 

Nick: And I suppose, healthy banks tends to be quite supportive of those companies that are a bit more tighter, longer term investments and Capex theme type companies. From your conversations with those types of companies, were they sharing the optimism. In particular I suppose thinking about companies like the automakers, where, yeah, there's quite a few investable opportunities in that sector in India. I'd be interesting to hear a bit more about those, particularly given the global shift to, electric vehicles that that we're seeing.

Catriona: Yeah. I think it's hard to generalize in terms of private sector CapEx and where we are out in the cycle. It's very, very sector specific. I mean, in most cases, balance sheets haven't been the constraints. And we've seen that actually in terms of improvements with regards to corporate balance sheets and sort of corporate debt levels across India and the cost of capital, the key restriction. So actually there's been some evidence of selective pickups in CapEx. I mentioned the hospital names where quite a few were very intent on securing locations, offering leading medical equipment and trying to attract key talent to try and make a bit of a land grab and drive up rapid occupancy ramp up. Also some evidence of private sector CapEx pickup in electronics through sort of data centers and renewables even within the power sector. There was a lot of mention while I was in India around the defense sector. As the private sector readies itself for more of Modi's made in India platform to replace imports, and the government continues to walk the talk on defense so that that really depends on your risk appetite and your ESG tolerance. But that was a very strong theme during the trip. So in terms of private sector CapEx, I think industrial capital goods companies have languished a bit. We mentioned that already, but that's an area where we're closely tracking the sort of monthly order flow, undertaking channel checks and hoping to try and get a better sense of how that's likely to shape up. Now, the auto sector you mentioned, that was pretty exciting. And a market environment that's certainly a bit more, more buoyant and rife with speculation specifically around electric vehicles. So maybe let's start with the three wheeler markets, the tuk-tuks that you see in India, which are everywhere. You can get an Uber tuk-tuk very easily on your mobile phone. And it's a pretty exciting moment in India's electrification journey. So they've moved from zero electrification in three wheelers to now about 25% electrification in three wheelers, which is pretty dynamic. And there's likely to be appetite, and structural support to hit about 80 to 90% electrification in three wheelers, obviously predominantly in urban areas. The issue there, of course, is that buyers are typically very price sensitive. So manufacturers have to be extremely disciplined and try to prioritize volumes over value in order to really compete. Looking then at electric vehicles. Now I say it was it was pretty exciting. While I was there in that, one of the companies we met had very recently launched two electric vehicle models across 40 cities. And all investors were trying to grapple with what the target addressable market might look like, what profitability might look like, how essential various government measures, are in terms of driving profitability for those particular electric vehicles. And I think it's still really too early to tell. But what is clear is that customers are yet to be convinced that electric vehicles are viable in a country like India. So the initial focus is around urban drivers and around drivers who want to have that sort of user experience, that lifestyle choice, and have the financial wherewithal to afford a second car because there's a lingering range anxiety concern amongst users. And there isn't necessarily the ability to charge on highways or necessarily charge in homes if you're living in one of these highly, densely populated key metropolitan areas. What was interesting is that sort of tier two and tier three cities actually perhaps lend themselves better to electric vehicles where there's more bungalow living, more at home, driveway charging. But that's still a little bit early at this point. So the company we spoke to hadn't yet launched its EVs in those key locations. Now, what I haven't mentioned, is something that's really been featuring in the press an awful lot of late. Modi met Elon Musk during his visit to Washington. So yes, he went and spoke to President Trump, but he also made a point of meeting Elon Musk. And that was that was very much in the public domain during my trip to India and India's allegedly proposed cutting EV import taxes for automakers who are willing to commit to invest in India and have local production. So Musk was in the press again just this past week, outlined that he plans to visit India, outlining that Modi is allegedly supportive of Tesla's entrance into India and that Tesla plans to establish a presence in India as soon as humanly possible, which is likely to upset the applecart for more than a few domestic players so let's see how that shakes out. 

Nick: Yes, I bet, and I suppose that's quite interesting in the context of Modi's quite close relationship with Trump. Those guys both seem to get on quite well. You know, perhaps, just given the volatile geopolitics at the moment and all the tariff talk that's going on. Yeah. What was your impression of the country's vulnerability there. Or perhaps some of the opportunities that they might have? 

Catriona: India has a trade surplus with the USA. So you can imagine it's near the top of Trump's target list to try and tackle that. It's estimated at between 40 and 50 billion USD. And that's depending on whether you use the accounting approach by India, which tends towards the lower end of that range, where the accounting approach by the USA. Now, we're still very unsure in terms of how the tariff landscape is likely to look. USA tariffs on India imports are approximately 2% and Indian tariffs on US imports are closer to 10%. So at an aggregate level, there could certainly be some argument for equalization. But it's not clear how both parties are set to go about that normalization. If they go down the sector route, there perhaps some areas where tariff differences are said to be pretty large and that'll be around pharmaceuticals, autos, auto parts and gemstones or jewelry. But at this stage it's pretty difficult to assess whether it be reciprocal tariffs or what sort of structure both parties are likely to go down. Ultimately, if U.S. tariff increases primarily focus on China, and we're yet to see that play out, then some of these emerging markets like India, Mexico, other Southeast Asian economies could be beneficiaries from redirected global trade flows. However, if U.S. tariff increases are broader than that, and it's not predominantly focused on China, then the number of reshoring or China plus one winners could actually be reduced. And that would certainly be detrimental to the likes of India, which has benefited from that nearshoring or reshoring trade. Either way, Prime Minister Modi wasted no time in jetting over to meet the new US president. In fact, he was the fourth world leader to visit Donald Trump in the white House in middle of February. The two leaders agreed a number of early stage policy directions, including doubling U.S. India trade to $500 billion by 2030. We're not yet clear what type of trade deal both are pushing for, so let's see. Interestingly, it was also only the third time Modi has conducted a direct press Q&A, and that's in an almost 11 year tenure as prime minister. So perhaps indicative of the lengths he's willing to go to ensure trade negotiations go smoothly. 

Nick: Yeah, no, I'm sure making that effort will pay off and it's always funny to hear those big numbers that Trump likes say $500 billion. What about I suppose you know, given your backdrop is as a manager of the fund that's aligned with the UN Sustainable Development Goals and also the impact funds. Were there any interesting angles where from the perspective of those funds, in terms of new opportunities or existing investments, which are doing interesting things on that? 

Catriona: Yeah, absolutely. I went predominantly looking for more SDG aligned ideas for the emerging markets, Asian SDG funds and our global impact fund. India is the most populous country in the world, and unlike many other countries, it's a population that's continuing to grow. But it's also a country where you are very swiftly confronted with the disparity between so-called haves and have nots. And nowhere is that more palpable than Mumbai, which is where my trip started. You can see for miles around the Ambani residence. It's on Mumbai's billionaire's row. And yet Mumbai is also home to one of Asia's biggest slums, with estimated sort of 35 to 40% of the greater Mumbai population living in slums. So that disparity is almost immediately obvious. Now, I would say Mumbai is not necessarily representative of the entire country. You know, less than 10% of India's population live within slums, but 60% of India's population live in rural areas. And inherently those rural areas have weaker access to formal electricity, financial services, reliable health care, telecommunications and clean water. So access to some of those basic needs, essential requirements is a good deal more limited. And the way we look at it in our SDG aligned funds is rather than seeing those as problems or shortcomings, we look to identify companies that are turning those opportunities on their heads. Looking for target addressable markets, where I listed companies are proactively and profitably tackling those unmet needs in the local market. One company that really stands out is Mahindra & Mahindra, which is the world's number one tractor company by volumes. Now, crucially, 95% of its tractors are focused on the domestic market, so it's not cheaply making tractors and exporting them globally to support sort of big agricultural powerhouses that we might see in the US, Western Europe, etc. it's actually targeting typically smallholders with 50 horsepower tractors, which are sort of less powerful tractors, and they have a 40% share in India's agricultural sector. So that's really doing a very pivotal role in terms of feeding India's growing population that I've outlined, and also providing livelihood for the rural population, where I outlined 60% of India's population living in rural areas. Another example would be around financial inclusion. So Aptus Value Housing, for example. That's a retail focused housing finance company. And it's servicing low to middle income, typically self-employed customers again in rural and urban areas. And there's been many studies outlining the power of formal financial inclusion, formal credit, where you can incentivize healthy credit behaviors, allow for sort of group lending or single lending in these rural areas and help to really have a multiplier effect in terms of rural growth and rural demand. And then the last opportunity I would pick up would be one of the world's leading providers of telecommunication services, and that's Bharti Airtel. It's actually an Indian company, has operations across 18 countries, and they span Asia, but also Africa, a number of very dynamic African markets with 400 million subscribers globally. And there the angle is around build out of resilient infrastructure. And actually specifically, there's a UN Sustainable Development Goal that calls out access to the internet, which I think is often overlooked but can have a very powerful effect in terms of people's ability to communicate with one another, to find job opportunities and really, again, that multiplier effect. So Bharti Airtel, I think, stands out as having a very strong alignment with the UN SDGs. 

Nick: I suppose in terms of just the trip you traveled around a fair bit, what was the, what was the best meeting and a give us a bit of flavor of the worst one as well? 

Catriona: Okay. Probably easier to start with the worst meeting. There was one that really stands out by country mile. And it was a reasonably big group meeting with the finance director of a state owned logistics company. They only agreed to do one meeting at this conference, despite there being 1000 investors present. So that's quite indicative of the perhaps the airtime that they align for minority investors. And within a few minutes, you got a very clear sense, of how this corporate interaction was going to go, that they were extremely light touch, provided very little in the way of coherent takeaways, really. And the room full of local investors, plus myself and a few others, but increasingly aggravated as they tried to seek clarity. So for me, the most interesting takeaway from that meeting was the sheer degree of frustration amongst local investors who were voicing concerns around poor transparency, perceived lack of progress, inability to properly disaggregate margin trajectories. Really frustrating. But the lesson here was that actually, like other capital goods or industrials players, the company had lagged. But visibility after this meeting failed a lot worse rather than better. It was a real lesson in the power of clear communication to investors. And one of the key reasons why at Aberdeen we typically don't own or very underweight to state owned enterprises in emerging markets where governance, transparency and alignment to minorities can be a good deal worse. 

Nick: Yeah, it's funny, sometimes you do get the worst meetings out of state owned businesses don’t you.

Catriona: Absolutely. 

Nick: The individual there is just less keen to talk to investors. 

Catriona: It felt like we were wasting their time. That was the palpable sense. 

Catriona: The best meeting is tougher in the sense we have quite a few really good meetings, but maybe not necessarily the best meeting. But perhaps what surprised me most was the day we had in Bangalore, which focused around Quick Commerce. It's a relatively new phenomenon here in the UK, but it was everywhere in key metropolitan areas in India, delivering anything from fresh fruit and veg, chilled yogurt, frozen goods to things like hairdryers, small air conditioning units, even sort of trendy iced coffees delivered to your door by, by a motorbike rider. Astoundingly, consumer expectations. They're increasingly moving from the all important 30 minute mark to which ten minutes. So ordering something on your mobile phone and expecting to have it delivered to you within ten minutes, even in the most densely populated corners of Mumbai or Delhi. Of course, the question is profitability. Anyone can grow, anyone can gain share. If you've got the financial wherewithal. But it's once that funding dries up, once you look to IPO, that profitability really needs to take precedence over land grab. We visited the dark store of one such company, which is hoping to IPO in the medium term. It was refreshingly simple in its approach, but a hive of near consistent activity, and they are intent on turning off the growth tap and trying to ramp up profitability in the coming weeks, months and quarters ahead of the IPO. So watch out, incumbents Quick Commerce is coming for you.

Nick: There we go. That sounds exciting. Well hopefully it'll work out for them and might turn into another Gorillas if you remember that from a few years ago. Yeah, okay. So final final, fun question. Favorite city? Best meal? 

Catriona: Oh, tough question. Would have to be Mumbai. I spent almost three days there, and I was fortunate enough to be taken around by a local, from our Singapore office who is from Mumbai. Went to study in Mumbai. Family based in Mumbai. She took me out to dinner to one of her very local favorite restaurants where she used to go as a student. Tried to encourage me to have some food from a street stall before we had dinner, which I politely declined. That was day one of my trip, and could have meant the remaining four days for a bit of a write off, but we had a very local dinner that first evening and really enjoyed it, so that would be my favorite meal. It's very low key, and probably my favorite city in the sense of the contrast, yes, but huge amounts of infrastructure, this incredible coastal road that's been done to try and join up BKC with downtown towards Marine Drive. And I think real evidence that actually some of those infrastructure investments that have been going on in India in recent years are really paying off and transforming how people can move around the city.

Nick: Well, that's great to hear. I'm very excited, I'm going to Mumbai, so I'll get that restaurant recommendation off you. 

Catriona: There you go. 

Nick: There we go. Well, that's, great. I think that's a good place to draw the podcast to a close. So thank you very much, Cat. Really appreciate it. 

Catriona: Thanks, Nick, 

Nick: And thanks everyone who took the time today to listen in. If you enjoyed it, then please download our other podcasts from our website or wherever you normally get your podcasts. Watch out for the next episode and tune in.