Blog: Alternative Investments India

Alternative investments are a great add on to your investments in equity and fixed income. When it comes to India, the most relevant alternative asset classes are real estate, Infrastructure, PE venture and Impact investments.  

Real Estate

The Indian real estate sector is split into:

• Office
• Retail
• Residential
• Warehouse

The Real estate sector in India is expected to reach US$ 1 trillion by 2030. By 2025, it will contribute 13% to country’s GDP. Investments in the office segment have a 71% share, followed by retail at 15% and residential and warehousing with 7% each. In terms of sectoral share, the Information Technology (IT/ITES) sector dominates with a 41% share, followed by Banking, Financial Services and Insurance, and Manufacturing sectors with 16% each, while Other Services and Co-working sectors recorded 17% and 10%, respectively.

India has a rural population of about 65%, and a large part of the other 35 % living in smaller cities. It is expected that the move towards the larger Tier 1 cities will grow substantially the coming decades, and this will lead to large opportunities in all four sectors of real estate.

The largest cities (Tier 1) are:

• Mumbai
• Delhi
• Bangalore
• Hyderabad
• Ahmedabad
• Chennai
• Kolkata
• Pune

As of today, the easiest way to access the Indian real estate marked is via REITS (Real Estate Investment Trust) which is publicly traded at the stock exchange. The private market is still somewhat immature, but there are possibilities to get access via the larger international global funds. Pure private India Real Estate funds is harder to find.

Source: Ibef.org – “Indian Real Estate industry” 

Infrastructure

The urbanization of the world’s largest rural population brings enormous opportunities and challenges when it comes to infrastructure.  Improving infrastructure is critical to the livability of India’s cities. It is also central to India’s productivity and the competitiveness. The infrastructure sector includes power, bridges, dams, roads, and urban infrastructure development.

The infrastructure sector has become the biggest focus area for the Government of India. India plans to spend US$ 1.4 trillion on infrastructure during 2019-23 to have a sustainable development of the country.  As an example, the government has suggested investment of Rs. 5,000,000 crore (US$ 750 billion) for railways infrastructure from 2018-30.

The market opportunities for investing in Infrastructure in India is not very mature. Compared to real estate it is still lagging, but there are a few opportunities. Real estate has REITS, infrastructure has INVITS (Infrastructure Investment Trust). These are publicly traded at the stock exchange, and easily investable.  In the private market, there are a number of players who have invested in Indian infrastructure via their global funds, but pure Indian funds is still very hard to find. The focus on infrastructure in India is expected to grow rapidly the coming years, especially in the renewable energy sector.

Source: Ibef.org – “Infrastructure sector in India”

Private Equity

The private equity sector in India is heavily weighted towards the venture industry. Leverage buyout (LBO) is not allowed by law, and PE can be split into early stage, growth stage and late stage. Early stage has had a market share of about 75% over time, while growth stage is at +-15% and the rest is late stage. The shift of global supply chains away from China will also be an important factor which is likely to strengthen the PE investment ecosystem in India going forward. As of today, the Indian venture industry is number three globally behind USA and China

Startup/Venture

The startup/venture market in India have had an amazing growth the last 10 years. Back then there were a few mainstream venture funds, only investing in the safe e-commerce and consumer growth companies.  With Modi as prime minister, a number of market friendly regulation and a large number of entrepreneurs willing to take the chance – the market have totally changed.

Today there are close to 60 unicorns in India, and both the number of new companies and industries is developing rapidly.  The country now has the third largest startup/venture industry in the world, and it is still at a very early stage.

The leading sectors in Indias startup/venture industry are:

• Consumer technology
• IT and ITES
• Banking, financial services and insurance
• Healthcare