India’s transition away from fossil fuels poses a major opportunity for investors, according to Ninety One.
With a population of 1.4 billion, a fast-developing economy and an ambitious net-zero target, India faces a mammoth challenge to decarbonise.
The UK, where emissions peaked in 1973, is aiming for net zero in 2050. However, emissions are unlikely to peak in India until about 2040, yet the country has set itself a target to achieve net-zero by 2070. This means India, which has a population 20 times larger than the UK, expects to fully decarbonise in just three decades.
This huge transformation is creating a structural-growth tailwind for select sectors and companies, says Ninety One, with companies such as Power Grid Corporation of India set to play a central role in overhauling India’s energy system.
The investment manager said sectors beyond energy are also set to benefit, such as manufacturers of battery-powered scooters and motorcycles as well as companies in their supply chains.
Arita Sehgal, sustainable equities analyst at Ninety One, said: “We are seeing a lot of action on the ground in terms of decarbonisation. What investors need now is for companies to get to a scale such that their economics become attractive.”
To achieve net zero, India needs around $10 trillion of investment between 2020 and 2070. However, to attract private investment, Sehgal says companies “must up their game on sustainability disclosures” and maintain a focus on governance.
Nick Robins, professor in practice for sustainable finance at the London School of Economics’ Grantham Research Institute on Climate Change and the Environment, said: “2023 is a pivotal year for sustainable finance with India hosting the G20 for the first time and the government signalling its commitment with a range of signature initiatives such as the country’s first green sovereign bond.
“To meet its climate and development targets, the country needs to attract considerable foreign investment from the public and private sectors, and bold thinking is needed to mobilise the trillions for assets that deliver a just transition for India’s growing population.”
However, Ninety One warned that India must be careful to balance its net-zero ambitions with its development goals, with millions of Indians reliant on the coal sector for their livelihood. In addition, decarbonisation will have widely varying regional implications.
Sehgal added: “Indian corporates have demonstrated resilience over time. There is a Hindi term ‘Jugaad’, which loosely translates as a relentless drive to seek solutions in the face of adversity. Marry that ethos with the long duration of the growth driven by rising incomes and decarbonisation, and I believe it makes the case for a very attractive investment opportunity.”
