Insights / February 25, 2020

India Versus China

Why We Believe India— Even More So Than China— Is a Standout Among Emerging Markets

While diversification is one of the most-basic principles of investing, we believe diversification can go too far—to the point at which fringe ideas dilute your best ideas. We think this can be a particular problem among emerging markets, where your opportunity set is enormous but also where the rewards don’t always compensate you adequately for the risks.

At Wasatch Global Investors, we scour the entire emerging-market universe. And we’re delighted to invest in attractive, niche companies wherever we find them—even in countries with difficult macro conditions.

But we treat such niche opportunities as complementary elements of our approach. The core elements of our approach include an attempt to ensure we’re mindful of where the wind is at our backs. And more than in any other emerging market, we believe the wind is at our backs in India—especially among smaller companies.


Because the opportunity set is so large and the headroom for growth is enormous, we think Indian stocks (smaller caps in particular) should be treated as a separate asset class with a dedicated investment allocation. Some might assert the same view about Chinese stocks, and we wouldn’t necessarily argue with such a position.

Having said that, China’s weighting in the MSCI Emerging Markets Index is above 30%. And this weighting influences many emerging-market portfolio managers. As a result, their clients probably have sizable exposure to China already.

Not so for India. The weighting for Indian positions in the MSCI Emerging Markets Index is less than 10%. And we believe it should be much higher.

For clients who’d like to consider a larger allocation, we think there are several basic questions they should ask: Why India over other countries? Why smaller caps in particular? Why now? And why Wasatch Global Investors?


At Wasatch, we’ve been investing in India for more than 15 years. And we meet on site with as many as 100 Indian company management teams annually. Based on this bottom-up research, we believe India is poised to experience exponential growth made possible to a large extent by three megatrends: digitalization, financialization and formalization.

Exponential growth is what can totally transform an economy in relatively short order—whether during the Industrial Revolution that began in the late 1700s, the
Computer Revolution that began in the 1950s or India’s megatrends that we’re seeing today. Moreover, we believe the megatrends of digitalization, financialization and formalization should benefit our Indian holdings in particular. One reason for this is that we focus on high-quality small caps. And while exponential growth can be a decent tailwind for large companies, it can be a gale of sustained advancement for smaller companies that have even more headroom for expansion.

Digitalization involves the electronic storage, retrieval and distribution of information, and the ability to communicate, collaborate and be productive with the help of electronic devices. Digitalization means that India is making great strides in the biometric identification of almost all its citizens (with data integrity and security) and in the expansion of the internet and mobile-phone services—often more quickly than developed-market counterparts.

A central part of digitalization is India Stack—a set of standardized application programming interfaces (APIs) or building blocks—which allows programmers to more easily create technological solutions for governments, businesses and individuals. The goal of India Stack is to form a digital infrastructure that lessens or eliminates the need for paper records and tangible currency, and that uses biometric identification to vastly reduce requirements for peoples’ physical presence. To put this initiative in perspective, India Stack is the largest open API in the world. In fact, almost all adult Indians will soon have DigiLockers to hold electronic government documents such as birth certificates, tax statements, driver’s licenses, motor-vehicle registrations and exam scores.

Financialization entails the creation and distribution of banking, investment, credit, payment and insurance services. Financialization is at the foundation of any well-functioning modern economy. Moreover, digitalization is a critical element of India’s rapid financialization—and the interaction of the two is critical to the country’s virtuous circle of amazing progress.

Formalization refers to the greater transparency of economic activities and a better regulatory framework.
One element of formalization is a simpler and fairer tax system that reduces layers of “petty corruption
 and gets tax money to where it’s intended—to building infrastructure, for example. Another element of formaliza­tion is making personal and business transactions with electronic devices, rather than with tangible currency notes. This way, transactions are conducted more honestly and equitably—and with less “regulatory cholesterol that clogs economic systems.


As mentioned, there’s no doubt that China is a major economic force and is correspondingly well-represented in many emerging-market and global portfolios. India, by comparison, has a population of similar size, has even better investment prospects in our view and has less exposure to trade-war risks. But Indian equities are surprisingly underrepresented in many portfolios.

Consider that India is home to more than 1.3 billion citizens—over a sixth of all the people in the world—and is one of the fastest-growing major economies on the planet. India also benefits from a relatively young population’s willingness to embrace technology, transparency and the rule of law. Extremely rapid progress has ensued from there.

A young population is important because radical change is more likely to be accepted by people who haven’t lived long lives under an obsolete paradigm. In fact, with over 65% of its total population under age 35, India has the largest group of young people on the globe. In the next decade, the estimated change in India’s working-age population (ages 15 to 64) will be 110 million—making India’s workforce the world’s biggest at about one billion people, many of whom speak English. This is in contrast to China, which is expected to see a decline in its working-age population.

Technology has allowed India to leapfrog outmoded stages of development in the ways people communicate, the ways they live and the ways they work. Just imagine going from having no indoor plumbing or electricity to having a mobile phone and a bank account almost overnight.

Transparency—protected, of course, by world-class security—has allowed technology to function properly. Without transparency, technology would be limited in its ability to improve peoples’ lives. For instance, the Indian government wouldn’t be able to help the poor as effectively if people weren’t willing and able to disclose their identity, their circumstances and their needs.

Moreover, transparency is a vital aspect of the rule of law, which is a basic element of a thriving economy. People need to know that corruption will be exposed and that what they earn and save won’t be stolen through malicious schemes. The rule of law encourages people to engage in productive work and pay their taxes.

A person from a developed region visiting India might be surprised by our enthusiasm for the country’s potential. After all, India is still plagued by poverty, pollution and poor infrastructure. But as we like to say, these things only represent the country’s “hardware, or what can be seen on the surface. We believe the country’s “software, what can only be seen by looking deeper, is in much better shape. India’s software is mostly responsible for the country’s technological innovation and virtuous circle of progress that are occurring at breakneck speed. This is why we think a country’s software is much more important than its hardware for winning in the 21st century.


In India, the Hindi term jugaad can be used to describe an improvised fix, or a clever solution born of adversity. In other words, jugaad can characterize a way of life—an attitude of doing more with less. In the past, jugaad had meant that India always found a way to move ahead incrementally and to make do.

But what’s happening in India today is much more than simply making do. Preparation has met opportunity, and India is currently taking a giant leap forward. This rapid advancement is happening now because there’s been a confluence of positive changes. These changes include public initiatives such as massive Goods and Serv­ices Tax (GST) reform and Aadhaar, which uses biometric data to electronically identify almost all of India’s adult population, and private enterprises such as Reliance Jio, which is India’s extremely low-cost provider of high-tech mobile-phone service.

From a political standpoint, Prime Minister Narendra Modi was overwhelmingly re-elected for another five-year term. This should enhance the prospects for continued government reforms, economic-growth initiatives, and corporate competitiveness as India strives to lure manufacturers looking for relief from tariffs and other disruptions tied to the trade dispute between the U.S. and China.


We believe the reason to rely on Wasatch for Indian stock picking comes down to experience. As mentioned, we’ve been researching companies in India for over 15 years and our firm is among the relatively few U.S.-based advisors that run actively managed strategies exclusively invested in Indian stocks. Additionally, compared to their benchmarks, many of our international, global and emerging markets strategies are overweighted in India.

With our India-only strategy—the Wasatch Emerging India strategy—we typically hold 30 to 70 positions. Although we can invest in companies of any size, we focus on small- and mid-cap companies that tend to have especially significant headroom for expansion. We think our deep, fundamental research of smaller companies is very different from many emerging-market managers and indexes that typically concentrate on bigger names.

For clients who are registered to accept securities traded on the Indian stock exchanges, the Wasatch Emerging India strategy can be structured as a separately managed portfolio. Otherwise, we have the convenience of a mutual fundthe Wasatch Emerging India Fund.



Investing in small cap funds will be more volatile and loss of principal could be greater than investing in large cap or more diversified funds. Investing in foreign securities, especially in emerging markets, entails special risks, such as unstable currencies, highly volatile securities markets and political and social instability, which are described in more detail in the prospectus.

Diversification does not eliminate the risk of experiencing investment losses.

An investor should consider investment objectives, risks, charges, and expenses carefully before investing. To obtain a prospectus, containing this and other information, visit or call 800.551.1700. Please read the prospectus carefully before investing.

Information in this document regarding market or economic trends or the factors influencing historical or future performance reflects the opinions of management as of the date of this document. These statements should not be relied upon for any other purpose. Past performance is no guarantee of future results, and there is no guarantee that the market forecasts discussed will be realized.

The Wasatch Emerging India Fund’s investment objective is long-term growth of capital.

ALPS Distributors, Inc. is not affiliated with Wasatch Global Investors.


Earnings per share or EPS is the portion of a company’s profit allocated to each outstanding share of common stock. EPS growth rates help investors identify companies that are increasing or decreasing in profitability.

The MSCI Emerging Markets Index is a free float-adjusted market capitalization index designed to measure the equity market performance of emerging markets. You cannot invest directly in this or any index.

The MSCI India Investable Market Index (IMI) covers all investable large, mid and small cap securities across India, targeting approximately 99% of the Indian market’s free-float adjusted market capitalization. You cannot invest directly in this or any index.

Source: MSCI. The MSCI information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used as a basis for or a component of any financial instruments or products or indexes. None of the MSCI information is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. Historical data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. The MSCI information is provided on an “as is basis and the user of this information assumes the entire risk of any use made of this information. MSCI, each of its affiliates and each other person involved in or related to compiling, computing or creating any MSCI information (collectively, the “MSCI Parties”) expressly disclaims all warranties (including, without limitation, any warranties or originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost profits) or any other damages. (