As 2018 ends and we head into 2019, it would be worthwhile to s an the investment horizon and identify important strategies that investors and entrepreneurs could explore to create businesses that can benefit significantly from growth in the Indian markets.
As incomes rise steadily in India, “premiumisation” business models will gain traction among investors in the foreseeable future. The ability of businesses to create high-quality premium products and services to cater to the upper end of the market needs renewed attention. While the “premiumisation” theme has been applied in things like baby products and food, there is a need for the trend to pick up further steam.
The “premiumisation” theme applies as much to consumer businesses as to services and infrastructure providers. In largely commoditised businesses such as offices, logistics and warehousing, the ability to create a niche — as demand for high-quality assets increases — will be the driver of the “premiumisation” theme.
For example, with the economy growing, the demand for high-quality office space should see further expansion, driven primarily by the services industry. As the industry becomes more significant in size (in both absolute terms and percentage terms), one can expect additional demand for top-notch office space in the form of both buildings and office parks. The ability to deliver high-quality premium assets in land-constrained urban areas will help businesses stand out.
Additionally, business opportunities in areas such as specialised premium warehousing should gain traction. With increasing healthcare penetration and greater longevity, industries such as pharmaceuticals will demand high-quality, sophisticated warehousing and logistics infrastructure to cater to the growing demand. Infrastructure businesses that can create the necessary logistics infrastructure will be able to charge a premium for the asset in a sector that is primarily viewed as a commoditised service.
Essentially, for patient capital, long-term structural trends present opportunities to create premium assets that benefit from the changes sweeping through the Indian economy. Whether it is trends such as increased per capita healthcare expense and the greater longevity that creates opportunities in the pharmaceutical sector or patterns such as increased urbanisation, nuclear families and higher women’s work participation that creates the need for online grocery delivery, the essential point is that long-term trends will create the need for premium specialised infrastructure. Such infrastructure creation is full of investment opportunities.
The coming year and beyond also present both investors and the government opportunities to assess additional sectors such as energy storage and water, where decentralised infrastructure can have a significant role to play. While subsidies are an essential component of a policy package for accelerating the creation of infrastructure, financially viable platform structures that can help aggregate assets can be a game changer for decentralised assets that have significant demand.
It is essential to channel adequate funding towards the decentralised infrastructure sector, such as water assets or energy storage assets, to expedite infrastructure creation. For generating sufficient funding for an infrastructure asset at a rapid pace, it is vital that the infrastructure asset moves towards becoming an asset class eventually.
For instance, two themes that have received significant attention are “clean energy” and “access to clean water”. Decentralised infrastructure platforms can contribute significantly to these two aims. It is also vital to not look at decentralised infrastructure as a replacement for centralised systems, but rather as an alternative solution for specific scenarios.
There have been innovative models that are being utilised where investors are using platforms to aggregate distributed water treatment businesses catering to medium- to large-sized businesses as opposed to centralised water treatment businesses that require large-scale water transportation infrastructure to be created. Specialised industries the world over are benefitting from decentralised water solutions. The years ahead will provide opportunities for infrastructure investors to utilise investment platform-type structures to aggregate decentralised assets further. Such innovative solutions need to get a further impetus.
Most importantly, the government must also realise that decentralised infrastructure is essential to complement the larger infrastructure-creation process and hence must ensure that policies help promote the sector.
The year ahead provides an opportunity to innovate to create investment opportunities that deliver both investment returns and broader societal benefits. Strategies such as “premiumisation” and “decentralised infrastructure” will help cater to demand in a rapidly-growing consumer market through financially-viable business models.
(Taponeel Mukherjee heads Development Tracks, an infrastructure advisory firm. Views expressed are personal. He can be contacted at email@example.com or @Taponeel on Twitter)