Despite 12-14% growth, Indian healthcare still underdeveloped, Morgan Stanley

India’s healthcare industry has grown at 12-14 percent CAGR over the past five years, but it is still underdeveloped compared to the global market, Morgan Stanley said.

The global brokerage said aside from traditional hospital and pharmacy services, digital health can be an interesting area given the high smartphone penetration rate, 75 percent of the population living outside urban centers, and digital healthcare adoption being boosted by the pandemic.

The brokerage noted that Indian markets have delivered strong returns over the last two decades and many investors, even in the emerging markets, have missed out. MS believes the backdrop of economic growth acceleration and more prosperous households, will likely provide well-run businesses the opportunity to gain share and improve efficiencies. This will provide numerous attractive Indian businesses to invest in, it added.

“We believe India’s growing population and young demographic, and its efforts to build digital, regulatory, financial, and physical infrastructure over the last decade, will pave the way for growth acceleration over the next decade. This will have significant implications for India’s share of the global economy and equity markets,” said the brokerage.

The brokerage pointed out that as an economy, India is likely to grow much faster than global growth, and despite quadrupling over the last two decades, India’s weight in the global equity index is just 1.7 percent, trailing its current 3.4 percent share of global GDP.

India is also home to a disproportionate number of high-quality companies (over 15 percent 3-year revenue growth CAGR and over 15 percent ROIC). MS believes India’s growing population and young demographic, and its efforts to build digital, regulatory, financial, and physical infrastructure over the last decade, will pave the way for growth acceleration over the next decade.

This should drive India’s nominal GDP growth, in USD terms at high single digits, taking its GDP from $3.5 trillion in 2022 to $8.1 trillion in 10 years according to Morgan Stanley Research.

“We have made multiple investments in India since the inception of our first strategy in 2006, across financials, consumer, and industrials. As a team, we look for leading businesses with large addressable markets, opportunities to gain share, and strong management teams we can co-invest with for the long term. We believe India offers an attractive hunting ground to find ideas that meet our criteria for long-term value creation. We expect the evolution of the Indian economy over the next decade will support our bottom-up ideas rather than act as headwinds, as we have seen in other emerging markets,” said the brokerage.
MB Bureau