The World As We See It

November 2019


Global macro, as we anticipated, remains challenging. Business sentiment remains subdued across the board even as trade disputes, famously the US-China dialogue, continue to throw a spanner in the works. Rates are expected to remain lower for longer as is evident in market pricing all across. Outstanding debt instruments earning a negative yield continue to build up with recent estimates pegging that number well over US$15 trillion.

Paltry yields provided by government fixed income instruments keep nudging long term investors, pension funds, insurance providers, endowments, etc. to move further towards the riskier end of the risk-return spectrum. This has started expressing itself in building up of debt on corporate balance sheets flowing through non-banking financial firms across major economies. It makes the overall global financial fabric vulnerable to external shocks and how this saga will end is anybody's guess for now.


Indian macro, impacted by domestic challenges as well as some external ones, remains challenging as well. GDP growth for the quarter ended September came in at a six-year low of 5%. Capital expenditure and consumption, the two major growth drivers of this economy, remain in the slow track and lacking any clear visibility of triggers to accelerate their pace. Illustrating capex slowdown, steel and cement production and demand were all headed firmly south y-o-y and so were projects under implementation and fresh investment projects announced. Consumption slowdown manifested itself in domestic two-wheeler sales for September being down nearly 20% y-o-y while domestic passenger vehicle sales down ~30% y-o-y. External demand is also slow, September exports contracted nearly 5% y-o-y, given the global macro situation playing out and impacting all major economies. FDI flows remain robust and foreign exchange reserves tracked lifetime highs at US$437 billion. Brent remained around the US$60 mark even as INR depreciated slightly against the US$ to 71.

India fared well in the World Bank’s ‘Ease of Doing Business’ rankings coming in at 63 among 190 countries. However, it slipped 10 places to rank 68 on the World Economic Forum’s Global Competitiveness Index ahead of all its neighbors, except China (28th rank). In what was shocking, India fared poorly in the Global Hunger Report published jointly by Concern Worldwide, an Irish agency and Welt Hunger Hilfe, a German organisation. India came in 102 among 117 countries significantly behind all our neighbours. India clearly has a lot to do and a long way to go. One of the key drivers of these changes is the utilisation of technology in various walks of life to enhance productivity, increase efficiency and remove friction from its citizens’ life. 

Replying to the recent downgrade by Moody’s, Dr. Mark Mobius, our lead investor, advisor and well-wisher said to CNBC, “I think Moody’s call was erroneous, I don’t think it was called for because I see tremendous growth coming in India going forward. I believe that a lot of the reforms are going to really begin to kick in and have a big impact on the economy going forward.”

On this note, let’s see what’s happening in the early stage ecosystem.

Startup Ecosystem

As depicted in Figure 1, the Second quarter of FY 20 was a blockbuster quarter for the Indian Startup Ecosystem. There was an uptick of 27% (from 264 in Q1 to 336 in Q2) in deal activity across stages, which resulted in a 163% increase in capital invested (from US$1.74 billion to US$4.5 billion) and a 106% increase in the average deal value (from US$6.6 million to US$13.6 million). Figure 2 gives a broader overview of the long-term trend in our ecosystem.

Having briefly covered the role of innovation in India, this time we would like to draw your attention to the Global Competitiveness Index. Published annually by the World Economic Forum (WEF), the index ranked India 68th out of 141 countries, resulting in the country slipping 10 spots compared to last year. This was largely due to the improvements witnessed in several economies. However, India performed rather well and ranked high in corporate governance (15), shareholder governance (2), macroeconomic stability (43), market size (3) and innovation (35) aspects. The report highlighted that India can improve upon its information and communications technology adoption rates and healthcare access.

On a recent visit to Riyadh, Indian Prime Minister Narendra Modi said, “I urge all investors, including venture capital funds, to take full advantage of our startup ecosystem. Investment in India’s innovation will fetch you the best possible returns. That will not only yield financial dividends, but also empower the youth". This optimism about India’s early stage ecosystem can be seen and felt when we speak with participants including other venture funds, startups, intermediaries, etc.