We have written extensively about the optimism surrounding India following the May election of reformist Prime Minister Narendra Modi.  Chad Cleaver, co-portfolio manager of the Driehaus Emerging Markets Growth strategy, recently spent a week in India meeting with policymakers and corporates to assess progress six months into the Modi regime.

Mr. Modi Rising

By Chad Cleaver, CFA
December 2014

India holds a tremendous amount of potential as a country with a large population, favorable demographics and an entrepreneurial spirit among the corporates.  However, in recent years, the lack of infrastructure, policy paralysis and corruption scandals have held India back from achieving its growth potential.  Depicted below is a chart of new investment in roads (black line), which fell off a cliff in 2013 (click to enlarge).

New Investment in India’s Roads  

New Investment in India’s Roads

Source: NHAI, MORTH, Ambit Capital Research

During my recent visit to India, the policymakers I met with were intensely focused on infrastructure. A couple initiatives they outlined included streamlining the process for land acquisition and the faster approval of proposed infrastructure projects.  Moreover, a credible commitment on the part of the Reserve Bank of India to bring down inflation should usher in a more prolonged period of sustainable growth.

The Driehaus Emerging Markets Growth strategy holds a position in the leading manufacturer of passenger vehicles in India.  It has performed well despite a lagging domestic infrastructure but penetration remains extremely low at 18 vehicles per 1,000 persons.  To put this in perspective, India’s auto market is about a tenth the size of China’s, which sold nearly 18 million passenger vehicles in 2013.  With the right infrastructure policies in place, companies such as this one could see growth well above current market expectations.