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Why tech and sustainability in Asian markets are set for investment windfall

Wamda

Trade and investment between the Middle East and both India and China have been steadily rising over the past few years. This has become increasingly evident in the number of Indian and Chinese startups and companies scaling to the region. Institutional investors from the Middle East are also realising the opportunities these two markets have to offer. Neelam Verma, vice president and head of investments at Continental Group, an insurance intermediary and financial services solutions provider in the GCC region, explains why these two markets are so attractive to investors.

The “great reset” that is currently underway is particularly apparent in the investment ecosystem. There are two patterns: Investors are increasingly turning towards the Asia-Pacific, and they are making thematic investments. Furthermore, India and China are the hotbeds for these investments, with Indian startups raising $16.9 billion VC funding thus far in 2021, next only to China. What are the implications of these developments? And how will they shape up in the long term?

Let’s look at the money trail. The UAE and India aim to double trade to $100 billion in the next five years. Abu Dhabi’s sovereign wealth fund Mubadala, invested $1.2 billion in India’s telecommunications provider Jio Platforms in June 2020, while Saudi Arabia’s sovereign wealth fund PIF, has applied for a qualified foreign institutional investor licence in China.

All investments are anchored in technology

In today’s globalised world, technology is ubiquitous. With digitisation now touching all facets of life, it is only understandable that all investment activities are inexorably tied to technology. However, what is driving these investments specifically to India and China? Investors are seemingly encouraged by the aggregate demand for digital businesses, rising internet penetration, and most notably, the youth population in both India and China. Despite accounting for a mammoth share of global internet consumerism, both economies boast high demographic dividends; which is the measure of working people in the total population. To put this into perspective, over 650 million people in India are under the age of 25. And in the last couple of years, owing to increased digitisation and financial awareness, the youth population is entering the investment ecosystem in large numbers.

India’s IPO boom since the pandemic outbreak underscores the rationale. Food startup Zomato recently raised $1.26 billion in its IPO. Before the IPO was announced, institutional investors had mixed opinions on Zomato’s prospects. However, after the announcement, the shares were subscribed over 40 times. And, as expected, it made stellar listing day gains and has continued to stay buoyant since. First-time investors, particularly millennials, were the highest subscribers in the retail category.

Likewise, CarTrade IPO was another such instance that generated a lot of investor interest. In any case, technology is the common attribute of all the companies heading for IPOs. But the Chinese companies are currently facing uncertainties, following the government’s crackdown on tech IPOs. This move could work in favour of companies registered in India, Japan, South Korea, and Singapore.

ESG is coming of age

Among the thematic drivers, environmental, social and corporate governance (ESG) has broken new ground in the past couple of years. VCs are reserving substantial exposure to ESG-related funds and equities. And this development has had a direct bearing on the modus operandi of companies in India and China. Take Zomato IPO, for instance — Zomato had a dedicated segment for ESG in its presentations and the offer document or draft red herring prospectus (DRHP), hoping to tap into investors’ ESG focus. Meanwhile, financial institutions like HDFC are offering “green deposits” to customers willing to invest in ESG-compliant companies.

Yet, by one estimate, both India and China have relatively low ESG disclosure scores, compared to global standards. The ESG disclosure scores of India and China are 19.4 and 21.6, respectively, which are less than half of France’s (46.9). These disparities could see both the economies take policy-led actions. For its part, China has already tabled a policy of compulsory ESG disclosure, which could result in instant changes given the centrally-controlled implementation model.

India, on the other hand, could rely on structural tailwinds to ESG adoption. India’s large youth population, which is relatively more versed in ESG than preceding generations, is integral to this shift. Also noteworthy is the self-initiative from leading domestic companies to align with the global ESG upswing. For instance, Mahindra & Mahindra has a $600-million valued green product portfolio across its electric mobility, green buildings, and waste-to-energy initiatives.

Going forward, both China and India will, in their own ways, create ample opportunities at the intersection of ESG and technology, making a compelling case for global dry powder deployments.

November 14th 2021, 4:56 am
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