Based on Rachel Reeves’s Mansion House speech last week, the government seems to have finally got the memo that talking down an already depressed economy isn’t particularly helpful to its growth agenda.
While the adjective “rousing” is rarely associated with the Mansion House speech, the chancellor did her best to cobble together an investment case for the UK, with a focus on convincing more retail investors to put their savings into UK assets. If this wasn’t enough, British retail, or would-be retail, investors can also look forward to a government-backed “Tell Sid”-style ad campaign to cajole them into buying domestic equities.
Reeves faces huge challenges, underlined by the higher-than-expected inflation data the day after her speech. Part of the problem with nudging people into investing more in domestic shares is that investing today is a much more global game than in 1986, when the original British Gas campaign was launched to encourage investment in British Gas. At that time, for example, there were no emerging markets mutual funds available to retail investors, and ETFs (exchange-traded funds) hadn’t been invented.
The UK is now competing against the rest of the world for its own citizens’ money. America has, overall, been the biggest beneficiary of this shift within global capital markets. But, arguably, a far more pertinent example from a UK perspective, given the extreme contrast in recent fortunes and relative merits, isn’t the US or even certain European markets, but India.
India is already the world’s fifth-biggest economy. Data this month showed that it is on track to have its best year for initial public offerings (IPOs), raising roughly $1.5 billion more by this point in the year compared with 2024. It’s now the largest IPO market outside the US. In contrast, in the first quarter of this year, just £75 million was raised via listings in the UK.
According to Goldman Sachs, there have been $42 billion of inflows into Indian equities from within India itself in the past 12 months. For a market where only a small minority of people have any stock market investments, this is extraordinary.
Indians who are in a position to do so are backing their economy in a way that Reeves could only dream of. But when considered in the context of India’s broader investment case, it’s not hard to understand why. No country, not even America, has enjoyed such an array of structural advantages at this stage of its economic development. Some predictions suggest that India, currently growing by about 6 per cent annually, could become the world’s third-largest economy as soon as 2028.
Unlike many developed economies, India’s population pyramid is not completely inverted, meaning it has a largely healthy, young and increasingly well-educated population to fuel its growth. In contrast to the UK trying to modernise its somewhat “old world” economy, India is a hive of innovation and entrepreneurship. It already boasts a thriving start-up ecosystem that has created 121 “unicorns” (companies that have achieved valuations of at least $1 billion), the third-highest in the world. The tech leaders of the future are more likely to be born in Bangalore than in the Bay Area.
This isn’t to suggest that India’s investment case is without weakness. The country has long maintained a range of protectionist economic measures, such as high tariffs and strict capital controls, which deter inbound investment and limit outbound investment in non-Indian assets. India’s labyrinthine state bureaucracy, red tape, and impenetrable tax system have been significant impediments to growth. Its banking sector suffers from a lack of oversight, hindering domestic businesses from accessing global services and lines of credit.
However, from a capital allocator’s perspective, part of what makes India attractive is that these weaknesses can, in theory, be addressed with the right reforms and political will. While the economic gains of doing so are difficult to calculate, rough estimates suggest that they could lead to $30 billion–$40 billion of extra India inflows each year, potentially rising to $150 billion–$200 billion over five years. Numbers like this would turbocharge the Indian economic juggernaut. This is why Narendra Modi, the prime minister, has introduced measures to liberalise India’s foreign direct investment policies and make the market more accessible to international investors.
The 135 per cent rise of India’s “Nifty 50”, a key benchmark for its stock market over the past five years, has dwarfed other global indices, including the S&P 500, up 60 per cent, and could be turbocharged by a more aggressive reform agenda and a comprehensive American trade deal, which is being negotiated. This is momentum based on economic fundamentals, which doesn’t require an ad campaign, Sid or otherwise.
Seema Shah is chief global strategist at Principal Asset Management