Investment Adventures in Emerging Markets


Is India the Next Internet and Digitalization Frontier?

Away from the spotlight on China’s internet industry, India’s digital push has been gaining speed. Our Emerging Markets Equity team highlights the trends to watch.  

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by Franklin Templeton Emerging Markets Equity 

Digitalization in India has been advancing at a rapid pace since 2016, thanks to government initiatives, inexpensive mobile data and a significant step-up of venture capital and private equity funding.

Companies related to the internet and digital economy have also been gaining prominence on Indian stock exchanges, providing exciting investment opportunities and diversifying the overall market.

Key Drivers behind India’s Digitalization

In 2016, the government started its flagship “Digital India” initiative to transform the country into a digitally empowered society and knowledge economy. The campaign’s major pillars included the creation of Aadhar, a 12-digit unique identity number based on demographic and biometric data. It is now the world’s largest biometric identity system with over 1.3 billion holders.1

Also key was India’s creation of a Unified Payment Interface (UPI). Backed by the banking system and regulated by the Reserve Bank of India, UPI enables instant fund transfers between bank accounts on a mobile platform. It processed 4.2 billion transactions in October 2021, a more than 100% increase from the same month last year.2

Telecoms company Reliance Jio’s launch of inexpensive mobile data plans around 2016, together with the availability of attractively priced smartphones, was another important development. Greater phone and data affordability for a large part of the Indian population has boosted the country’s internet penetration rate since.

In addition, Indian internet companies gained support from a sharp increase in venture capital and private equity funding from 2017 to 2020. Funding in that period reached US$10 billion a year on average, up from US$4.5 billion a year in the preceding three years.3

And as in most other countries around the world, COVID-19 accelerated the adoption of e-commerce and digital services in India in 2020 and 2021.

Interesting Trends We See  

India’s online classifieds market has developed swiftly across multiple areas. An example of an online classifieds company is Info Edge, which is behind India’s leading job site, matrimony site, real estate portal and education portal Info Edge is also invested in recently listed food delivery company Zomato and other internet-based ventures.

More traditional businesses have also embraced digitalization. In the banking industry, several players have raced to develop technologies that can improve their customer service through digital channels. ICICI Bank, for example, has a digital one-stop shop called InstaBIZ for its business banking customers. In our view, banks that adopt an open architecture framework and a collaborative culture appear better placed than others to partner with financial technology (fintech) firms.

Identifying Potential Investment Opportunities

Franklin Templeton is among the oldest and largest fully owned foreign investment fund managers in India, and it has one of the biggest equity investment teams among global managers there.  Our Emerging Markets Equity team has 15 investment professionals in India covering an investable universe of around 400 companies.

Being on the ground allows our analysts in India to identify opportunities early. Tapping their local knowledge and networks, they can process a wide array of information not easily accessible by foreign-based peers. This applies not just to listed companies, but also to unlisted ones.

Being part of a large global emerging markets team also helps our India-based analysts put investment opportunities into perspective. With over 80 investment professionals globally, our Emerging Markets Equity team is one of the largest in the industry. Sharing information and debating investment ideas are part of the day’s work. On topics related to the internet and digitalization, our analysts in India benefit from the views and experiences of their colleagues in markets with higher penetration rates, such as China.

India’s stock market remains dynamic as a whole, and not only in the internet and digital services industries. We are determined to continue discovering the best investment opportunities in the country.

What Are the Risks?

All investments involve risks, including possible loss of principal. The value of investments can go down as well as up, and investors may not get back the full amount invested. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Special risks are associated with investing in foreign securities, including risks associated with political and economic developments, trading practices, availability of information, limited markets and currency exchange rate fluctuations and policies; investments in emerging markets involve heightened risks related to the same factors. To the extent a strategy focuses on particular countries, regions, industries, sectors or types of investment from time to time, it may be subject to greater risks of adverse developments in such areas of focus than a strategy that invests in a wider variety of countries, regions, industries, sectors or investments.

Any companies and/or case studies referenced herein are used solely for illustrative purposes; any investment may or may not be currently held by any portfolio advised by Franklin Templeton. The information provided is not a recommendation or individual investment advice for any particular security, strategy, or investment product and is not an indication of the trading intent of any Franklin Templeton managed portfolio.

There is no assurance any estimate, forecast or projection will be realized.

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1. Source: Unique Identification Authority of India (UIDAI), as of September 30, 2021.

2. Source: National Payments Corporation of India (NPCI), as of October 31, 2021.

3. Source: Morgan Stanley.



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