Each year, over 275,000 students leave India to pursue higher education abroad, says David Cornell, CIO of India Capital Growth at Ocean Dial Asset Management, in the first of an exclusive two part insight into key themes and characteristics of the NRI diaspora.
With such a high number of bright young things looking overseas for education, India has suffered from a ‘brain drain’. Back in the 1960s, this was felt particularly acutely as students and young professionals sought a better quality of life elsewhere.
However, there is evidence to suggest a reversal of this phenomena with benefiting from the return and reintegration of educated and skilled individuals.
In the early 2000’s, during the dot-com crash, upwards of 25,000 US-educated Indian professionals returned home, the majority of them having worked as tech engineers in Silicon Valley. Although not a vast number, these individuals returned highly skilled, and with the added experience of living and working in the entrepreneurial environments of the West Coast of the USA.
Cities such as Bangalore and Hyderabad were already starting to emerge as tech centres in India, and this wave of talent further boosted growth and innovation, with Bangalore even being dubbed ‘the Silicon Valley of Asia’.
Tenfold increase
The number of Indian-born residents in the US looking for jobs in India settled after the dot-com crash. But, the combination of increased political focus on skilled immigration in the West and an improved quality of life back home caused this number to increase tenfold between December 2016 and March 2017.
The intent of these individuals to return to India rather than migrate to another European or North American destination indicates the advances that the country has made; low inflation, a more stable currency, tighter regulations and a crackdown on corruption are all helping to appeal to the next generation of well-educated job seekers.
Improvements in infrastructure, both digital and physical, make the prospects of returning home and doing business there even more appealing.
World’s third largest for start-ups
These developments have facilitated a boost in the number of start-ups (over 1,300 were registered last year) with India boasting a total of 24 unicorns at the end of 2019. While this is still some way behind China and the US, India is now the third largest start-up ecosystem globally, with 52 companies on their way to becoming unicorns – the world’s largest pipeline of unicorns in the making.
As the professional landscape in India has expanded, overseas Indians are recognising the opportunities that returning home can offer in the way of career progression, and the government has been eager to support this.
Programmes such as the SERB National Post-Doctoral Fellowship were launched in 2016 to fund overseas Indian scholars wishing to return to India to complete their post-doctoral research. Further to this, improvements in higher education have encouraged students to favour domestic institutions.
In 2019, three of the world’s top 50 business schools were Indian, with the Indian School of Business ranking above institutions such as NYU, UCLA and Imperial College London to name a few, a marked improvement from ten years ago when just one Indian school made it into the top 100.
Numerous studies have been written on the quality of management in Indian corporates; a competitive education system, family values and the diversity of the population have all been cited as possible factors as to why these companies possess such strong leaders.
We see evidence of this globally with some of the world’s largest corporations being led by Indian CEOs – Alphabet, Mastercard, Microsoft, Nokia, Adobe to name a few. Keen to maximise on the talent of Non-Resident Indians (NRIs), in 2003, India launched a Prasavi Bharatiya Divas (NRI day) conference.
This event invites overseas Indians to share knowledge gained from working and living abroad. Speaking at the conference in 2019, Modi welcomed the diverse array of talent amongst this group, the sharing of best practices helping the ‘brain drain’ to become a ‘brain gain’.
With the country’s brightest minds seeing opportunities to return home, India’s corporates have benefitted enormously. In the past, the culture of family owned businesses (two-thirds of businesses in India are family owned) has hindered transparency and increased the risk of related party transactions.
Now, as second and third generation entrepreneurs are moving home to run the family business, these problems are diminishing with companies profiting from the experience they have gained from working and studying abroad.
ESG increasingly important
Why does this matter? Well, professionally educated leaders are more likely to implement higher standards of corporate governance, robust management strategies, and clear plans for growth.
A study carried out on the S&P BSE 100 Index, which scored each company’s corporate governance, identified that companies scoring ‘Leadership’ or ‘Good’ (the two highest grades) produced a mean CAGR return of 8.2% over the last two years, whereas those graded as ‘Fair’ or ‘Basic’ (the two lowest grades) had a mean CAGR return of -10.4% over the same period.
In the small and mid-cap space, the opportunity for growth is even greater, as is the ease with which a company’s corporate governance strategy can be improved, less affected by the bureaucracy that large caps see.
As Indian corporates are recognising the value opportunities here, and as ESG (or non-financial corporate analysis) plays an ever more important role, companies are making efforts to strengthen their governance.
For bottom-up stock pickers such as ourselves, this is creating some exciting opportunities as our investable universe expands. Passive strategies may miss the early opportunities provided by these developments, whereas our active approach, coupled with a small and mid-cap bias, further strengthens our position to maximise on growth.
By David Cornell, CIO, India Capital Growth Fund, Ocean Dial Asset Management
