Insights / July 7, 2023

Market Scout – On-the-Ground Research In India and China

We consider face-to-face, on-location visits with companies to be an essential part of our bottom-up, fundamental research approach. Our investment teams recently visited India and China to explore the current opportunities in these countries.

As bottom-up investors focused on fundamentals, Wasatch approaches research trips differently than many other firms. Instead of relying on investor conferences to find opportunities, we travel to make on-location visits to as many companies—including current and potential investments—as possible. Before we visit a country, we rigorously screen its investable universe to find companies that meet our criteria and are compelling candidates for further due diligence. Then, we arrange meetings with management teams at their company headquarters or other business facilities.

Our investment teams recently traveled to India and China to meet with management teams of current and potential investments. In this Market Scout, we share some of our observations from these visits. For more detail, including insight into specific company visits from our trips, see our newest white papers, China: A View From the Ground and India: A View From the Ground.

Observations From Our India Trip

Among emerging-market countries, the Wasatch investment team remains most constructive on India. We’ve shared our views on the country in prior communications, exploring how trends such as digitalization, financialization, formalization and industrialization continue to push its economy forward. Our recent visit to India allowed us to see how those trends are evolving.



The management teams we spoke with— even teams that have historically been more conservative—were positive about the economic outlook for the country. Consumers, hotel operators and cab drivers were equally optimistic. Capital spending and housing appear to be in an upcycle, and banks are reporting non-performing loans near all-time lows. Massive construction projects within cities and capital-spending plans among businesses point to a coordinated effort to spring India’s economy forward. We saw highways, overpasses, bridges and infrastructure being built everywhere. The sense of optimism and excitement among businesses and consumers was quite different from what we read and hear about in many other parts of the world, where recessions have arrived or recession fears are mounting. Economic forecasts confirm our views on the ground, with the International Monetary Fund forecasting real GDP growth of around 6% for India in 2023, one of the highest rates in emerging and developed markets.


In prior market commentaries, we’ve discussed industrialization as an important theme for India’s development. We’ve all seen the recent headlines about Apple and other companies moving production to India. On our latest trip, the growth of the country’s manufacturing sector was palpable. Management teams from industrial companies reported an upsurge in demand as global companies develop China Plus One strategies for their supply chains. In another telling sign, finance companies told us loan demand from manufacturing enterprises is surging as a direct result of China Plus One. Additionally, executives from several firms told us that after years of scant progress and initiatives going through fits and starts, the government’s newest Production-Linked Incentive (PLI) initiative, a broad collection of incentives to spur companies to manufacture goods in the country, is finally producing tangible results. From its launch in 2020 to the end of 2022, more than 650 applications have been approved for new manufacturing facilities under the PLI.


We met with a number of specialty-chemical companies on our trip, and we think a few trends are converging to support the industry. First, companies are relocating some of their specialty-chemicals manufacturing away from China. Second, the Indian workforce’s expertise in chemistry and mechanical engineering continues to make it an attractive relocation destination. We think this is the same type of expertise that allowed India’s pharmaceutical manufacturing industry to flourish in the mid-2000s. Finally, we believe a gradual and ongoing shift in preferences from petroleum-based specialty chemicals to plant-based specialty chemicals is also a tailwind. We’re excited about this relatively new area of investment for us in India.


Demand for travel and hospitality services may be the highest we’ve seen in two decades of visiting India. The trend was most evident in the price of domestic flights. Historically, in-country flights have cost around $70 to $80, but fares were often in the $200 range on our most recent trip. Hotel occupancy rates were also much higher than in years past. After getting hit hard by the Covid-19 pandemic, it was surprising to us how fast the population has put it in the rearview mirror. Gathering places were crowded, most people were unmasked, and the population generally seemed undeterred by the new Arcturus variant that emerged in the spring.


The government’s current fiscal-year budget increased infrastructure spending by over 33%, now totaling 3.3% of GDP. Mumbai is a prime example of the infrastructure development we saw underway. The city is undertaking

four simultaneous mega-projects that could remove significant bottlenecks and increase connectivity within the city. They include: a new coastal highway; a new airport on the eastern side of the city’s bay; an underground subway; and an overhead metro train. As India improves its infrastructure, information-technology (IT) service companies are also helping in the government’s efforts to create “smart cities” that include better 5G infrastructure and cameras to monitor traffic.


India’s digitalization and financialization have been long-running themes for the country and for many Wasatch portfolios. Still, we’ve been surprised by how much these initiatives have progressed over our last few trips. An overhanging question for India’s economy has been whether it can successfully get 60 to 70 million small merchants and more than 1 billion consumers integrated with its Unified Payments Interface (UPI), a mobile app allowing consumers to transfer money to merchants and to each other. That question seems to have been answered. We saw merchants across the country operating small kiosks with QR codes for all their products. Consumers are using the app on their phones to purchase items as small as a single cigarette. Data help confirm the growth we saw in UPI payments: The National Payments Corporation of India recorded nearly 60% year-over-year growth in payments for May, increasing from 5.96 billion payments in May 2022 to 9.42 billion in May of this year.


Digitalization makes it much easier to launch a new brand or to disintermediate an existing one. Meanwhile, the UPI system may make it easier for Indian financial companies to gather data and extend credit, which could then allow them to take market share from global behemoths such as MasterCard and Visa.

India’s rapid advancement and modernization will also quickly shift the investment landscape. We believe this rapid change will require deep knowledge of industries, companies and management teams, as well as continual, on-the-ground due diligence to identify the long-term winners and losers as India’s economy evolves. After this trip, we remain as excited as ever about the investment opportunities in India.

Observations From Our Trip To a Still-Reopening China

After China reopened its borders in early 2023, members of our investment-research team traveled to the country in May to meet with management teams face-to-face for the first time in more than three years. The investment team took full advantage of the opportunity, visiting 15 cities and more than 50 companies over the course of two weeks.



Heading into the trip, we read mixed reports about how quickly China was moving past the pandemic. While it’s true that some reopening data has been below market expectations, we witnessed bustling restaurants, airports and train stations. Tourist attractions were hitting maximum capacity from domestic travelers. People appeared cautious—although most weren’t wearing facemasks—but were generally positive.


While Chinese consumers are out and about, the loss of freedoms, and often incomes, has made them more cautious about spending. An interesting data point reflects the dichotomy between society reopening and consumers spending less: Domestic travel for China’s May Day holiday break was up 19% from the same holiday before the pandemic, but tourist spending was roughly flat compared to 2019. The lack of discretionary spending is also evident in China’s malls, which seemed relatively empty.

Across China, we noticed “consumption downgrading” by middle-class consumers who appeared hesitant to spend on aspirational items. Overall, we remain optimistic about the reopening trajectory. However, we think progress will be gradual and likely bumpy. We continue to look past near-term expectations in our investment horizon.


During our visit, we traveled over a 22-mile bridge connecting Shanghai and Ningbo and rode on quiet, electric buses on streets free of potholes. We also visited nine airports, all of which were built in the last 10 to 20 years and arguably operate more efficiently than those in the U.S. And it appears that even more impressive infrastructure projects are yet to come—testing is underway on a vacuum-tube train that will combine aerospace and railway technologies to commute passengers from Shanghai to Hangzhou (a distance of 150 kilometers) in just 15 minutes. The train will be tested at speeds of up to 1,000 km/h. Impressively, the country’s existing high-speed rail system has about 42,000 kilometers of track, already the longest high-speed railway in the world.


Examples of China’s innovation were abundant. Throughout China’s major cities, highly developed camera networks and facial-recognition systems detect and deter crime. At a robotics company we visited, a fully automated factory floor used robots to make robots. And China’s delivery system is extremely efficient—a member of our team left a swim cap and goggles at a Shanghai hotel but was able to have it delivered to our next destination 1,200 kilometers away in less than a day and at a cost of just $4.


We met with eight Chinese semiconductor-related companies during our trip. Companies confirmed that less capital is going into the chip-design industry, which should shake out weaker competitors in the next several years. It will also increase the availability of talent for remaining firms. Regarding the current semiconductor cycle, inventories appear to have peaked in some verticals. However, semiconductor buyers remain uncertain about demand for their own end products, implying the recovery may be softer or take longer than some forecasters expect.

From our meetings, we also got a clearer picture of the capabilities of the different management teams. We remain constructive on the industry, as our semiconductor holdings largely continue to focus on stable end-markets, expand into new verticals, ramp up new research and development, and execute tailored designs to meet customer needs.


The innovation taking place in the country, the infrastructure supporting businesses and the sheer size of China’s domestic market create compelling investment opportunities within the country. At the same time, there has been and continues to be an abundance of capital available to most Chinese businesses. This has led to fierce competition in some industries and, ultimately, low returns for investors. The abundance of capital means historically productive uses of it may not bear as much fruit. For example, investments in infrastructure and property may have lower marginal returns ahead and be less impactful growth engines going forward. For us, this reinforces the need to dig deep to understand the competitive moats of a business and the industry market structure in order to identify potential winners and losers. It also underscores the imperative of doing on-the-ground research to visit companies, factories, suppliers, customers and competitors.

China may be the ultimate stock-picker’s market in that sense, a place where more selective compounders overcome competitive intensity to generate outsized returns. Though the past three years have been a tough environment for compounding earnings because of lockdowns, geopolitical tensions and a volatile macroeconomic backdrop, we remain optimistic that our high-quality, long-duration investment style will be rewarded in China. Positively, our current holdings in China have continued to invest in growth—opening new plants and expanding into new geographies domestically and internationally.

With sincere thanks for your continuing investment and for your trust,

Ajay Krishnan and Dan Chace




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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 representative account for the Wasatch Emerging India strategy is the Wasatch Emerging India Fund. The primary investment objective of the Wasatch Emerging India Fund is long-term growth of capital.

The representative account for the Wasatch Greater China strategy is the Wasatch Greater China Fund. The primary investment objective of the Wasatch Greater China Fund is long-term growth of capital.

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Gross domestic product (GDP) is a basic measure of a country’s economic performance and is the market value of all final goods and services made within the borders of a country in a year.