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Many industries across India remain highly fragmented. However, a trend that has become more visible in India over the past several years under Prime Minister Narendra Modi’s administration is that of industry consolidation, which has streamlined the number of companies operating within each sector.
I see this as a largely positive development that presents opportunities from which some equity investors can (and should) seek to benefit.
The reasons for the increased industry consolidation are many. In the past, many sectors in India could have been typecast as “small-scale industries,” populated by mostly inefficient, uneconomical companies that did not generate the anticipated levels of employment. The Indian government has come to realize that size and scale matter in today’s world. Thus, it has forged ahead to attract large-scale manufacturing to the country using subsidies and other means. The most notable and successful example of this is that iPhones, including the iPhone 14, are currently being made (“assembled” is the correct word) in India. In fact, India has been the world’s second-largest maker of smartphones of all types for a few years now.
The change in the Indian government’s mindset is most apparent in existing businesses and sectors. The government has been a key facilitator of consolidation, either by design or by default. There seems to be a growing recognition that Indian companies need to get bigger to stay relevant and competitive globally. While the government has not explicitly articulated any such policy, I believe its actions on this front speak for themselves. Here are some examples of what I’m talking about.
Industry consolidation has been gaining considerable traction in India. All in all, I expect to see a lot more of it happening in the coming years, which should generally be good news for investors as consolidation of legacy, mostly family-run businesses into larger enterprises boosts market share, operating leverage, and profit margins for publicly traded companies in India. I believe these conditions offer equity investors an opportunity to benefit from positive change across a variety of industries in one of the world’s fastest-developing nations.
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