The World’s Digital Transformation Is ‘Made in India’

India’s economy, the sixth largest in the world, is expected to grow 9.6% this year after a decline of 7.3% in 2020, according to economists’ estimates collected by FactSet. While it’s true that 2020’s depressed numbers make for a relatively easy comparison, the economy is also projected to grow 7% in 2022 and 6.4% in 2023, well after the pandemic has passed. This is well ahead of its underwhelming growth of 4% in 2019 and, in our view, the result of a combination of recent economic reforms, very supportive monetary and fiscal policies following the pandemic, and, frankly, being in the right place at the right time as we’ll explain shortly.

Without delving too deeply into the country’s economic policies under the current government, it’s important to discuss a few key elements that have helped set the stage for such strong growth. Narendra Modi assumed the premiership of India in 2014 with a clear mandate to liberalize the country’s economy and help it break free from the statist model that had dominated its policies since it gained independence in 1947. Supported by a large parliamentary majority, Modi embarked on an ambitious program of economic liberalization that was designed to attract foreign investment into the country on a scale commensurate with its size. By all accounts, it succeeded. Foreign direct investment (FDI) inflows in the last five years (through March 2021) of $319 billion accounted for 50% of total FDI inflows in the last 20 years. In the last fiscal year alone (2020-21), FDI inflows to India totaled $81.7 billion, the highest ever for a fiscal year in the country’s history[1].

Global investors’ vote of confidence in India’s economy should no doubt be credited in part to the Modi administration’s economic policies; however, investment dollars go where investors see opportunities for significant returns and India’s ongoing transformation into a full-fledged digital economy has provided that. We discussed this last year in India’s Digital Time. Which brings us back to being in the right place at the right time.

The Covid pandemic ushered in profound changes in how people work, communicate, and interact with each other, as well as the products and services they consume every day. This has created immense global opportunities for companies in areas such as cloud computing, machine learning, AI, data analytics, automation, cybersecurity, e-commerce, and, more broadly, a rapid acceleration in the adoption of digital technologies across virtually all industries. The almost simultaneous coming of age of these technologies has propelled the valuation of “digital-first” companies to all-time highs and encouraged companies across most industries to evaluate where a digital strategy fits into their business model. For most, this has prompted a significant compression of their digitalization strategies, which helps explain many of the shortages seen today in semiconductors, computers, machinery and, most importantly, people. Enter India.

Since the early 1990s India has built one of the world’s most sophisticated information technology outsourcing and consulting sectors, which today is quickly reorienting itself toward digital services and away from legacy IT outsourcing (think of call center operators helping you troubleshoot your Windows operating system). McKinsey estimates that India’s IT industry will grow to $300-$350 billion in annual revenue within five years from $194 billion today, as digital services jump to $170 to $200 billion per year, or 50% of the industry’s revenue, up from 30% now[2]. And given the demand for digital and emerging technologies like AI and machine learning around the world, McKinsey suggests that India can generate $285 billion in economic value by 2030 by investing just $10 billion annually in modernizing its IT sector[3].

How Can Investors Harness this Opportunity?

While many of India’s most promising technology companies are still private, most of the country’s IT consulting firms are public, including some of the country’s largest in any sector. For exposure to the best of these, investors should consider the 80-company MarketGrader India All-Cap Growth Leaders Index (MGINGROW), which counts 15 technology companies among its constituents, accounting for 27% of its weight (highest among all sectors). Fourteen of these are IT Services or Data Processing companies; the other one, IndiaMart, India’s answer to Alibaba, has 60% share of the country’s online B2B market (according to the company). The following is a closer look at these 14 companies (we excluded IndiaMart from the analysis since we’re focused on the digital transformation story) and their remarkable performance in recent years. MGINGROW, by the way, is tracked by the VanEck Vectors India Growth Leaders ETF (NYSE Arca: GLIN).

The MarketGrader India All-Cap Growth Leaders Index has been selected 28 times since its inception in 2007 (it’s reconstituted and rebalanced semi-annually) and five of the fourteen companies on the list have been selected to the Index at least 23 times (or 11.5 years on average), which means they have been regular selections and significant contributors to the Index’s performance for most of its history. Four of the companies in the current Index, on the other hand, were selected for the first-time in March during our latest rebalance. All but two of the stocks have generated a positive return for the Index since March, with the entire cohort gaining 37%, on average, since March 22nd. The entire group, by the way, has gained 507%, on average, since they were first selected to the Index (all at different times). Figure 1 shows the complete list along with their selection history.

Figure 1. MGINGROW Companies in IT and Data Processing Services Industries

TickerCompany NameMarket Cap (USD, 000)Times SelectedFirst SelectedReturn Since First Selection (%)Last SelectedReturn Since Last Selection (%)
532540.INTata Consultancy Services Limited159,221273/24/087423/22/210
507685.INWipro Limited45,322269/22/083253/22/2139
526299.INMphasis Limited6,5352512/31/073623/22/2156
532281.INHCL Technologies Limited35,8972412/31/075453/22/210
532819.INMindtree Limited6,003239/22/081,9583/22/2137
500408.INTata Elxsi Limited3,505143/22/101,5823/22/2153
INFYInfosys Limited Sponsored ADR93,061139/22/083753/22/2115
540005.INLarsen & Toubro Infotech Ltd10,25093/20/174823/22/2110
533179.INPersistent Systems Limited3,18673/23/152673/22/2155
523704.INMastek Limited87933/19/183303/22/21111
543227.INHappiest Minds Technologies Ltd.2,74413/22/211433/22/21143
532370.INRamco Systems Limited25713/22/21-73/22/21-7
538835.INIntellect Design Arena Ltd1,34013/22/2113/22/211
532790.INTanla Platforms Ltd1,66013/22/2113/22/211

 Returns are price-only (USD), from the date on the table through Aug. 2, 2021. Sources: MarketGrader, FactSet

In the 12 months ended last quarter (March 2021), these 14 companies generated a combined $62.5 billion in sales, up 26% from $49.6 three years earlier. In other words, these 14 companies generated about one-third of all revenue booked by Indian-based IT Services companies based on McKinsey’s estimate of $194 billion for the entire industry. This is remarkable when you consider that there are more than 3,200 foreign companies operating in the country, many of which source a significant part of their IT personnel in the country. According to Gartner, $45 billion of the industry’s revenue in 2021 will be earned domestically (supporting the country’s massive digitalization drive), while $150 billion will come from overseas[1], underscoring our argument that these companies are, indeed, helping the world accelerate its transition to digital technologies. And while aggregate sales grew only 26% in three years, the average three-year growth rate for the 14 companies was 47%.

These 14 companies also reported a combined profit of $11.4 billion in the 12 months ended last quarter, 20% better than the $9.5 billion they had earned in the 12 months ended three years earlier (March 2018). On average, though, they more than quintupled profits in the last three years (since the smaller companies in the list have much higher growth rates than their mega cap peers). Figure 2 shows the one and three-year average sales, operating income, and net income growth rates for the 14 companies in the list through the end of March 2021.

Figure 2. 1 & 3-Year Growth Rates for IT and Data Processing Companies in MGINGROW

Sources: MarketGrader, FactSet

With 55% of global market share in the services sourcing business[1], India is the world’s number one IT offshoring destination. Emerging technologies such as blockchain, cloud computing, artificial intelligence and machine learning have given the country—and its technology leaders—an entire new set of opportunities to accelerate the world’s drive toward a digital economy. Investors looking for a differentiated exposure to this opportunity should look to India.

[1] Source: India Brand Equity Foundation,

[1] Source: India Brand Equity Foundation,

[1] Source: Invest in India,

[2] Source: The Economic Times,

[3] Source: McKinsey Global Institute,

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