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On the Road in India

January 11, 2013

by Mark Mobius

of Franklin Templeton Investments

My latest visit to India coincided with the celebrations of Navratri culminating in the day of the Dussehra, which symbolizes the victory of good over evil as exemplified by Lord Ram killing the demon king Ravana. The festive season starts from the Navratri and continues until Diwali, several weeks later.

In Delhi, my team and I had the privilege of attending one of the many Dussehra celebrations taking place all over the country, an event with some of India’s most prominent officials in attendance. When we arrived, the situation was a bit chaotic, with people milling about and pushing to get onto the grounds, but at the same time it was a festive atmosphere. Purveyors were offering local delicacies such as “roller ice cream,” which is made by dripping an ice cream mixture over a hand operated roller filled with ice and salt, as well as the roomali roti bread (handkerchief bread) which is made by flattening a ball of dough and tossing it in the air to stretch to the thickness of a handkerchief, then baking it on a heated dome.

At the celebration site, there were three 10-meter tall paper and wood effigies of Ravana and two of his family members with red blinking eyes. At the right moment, all the dignitaries were handed richly decorated bows and arrows which they shot in the direction of the effigies, symbolizing the Ram killing the three demon kings. A fireworks display followed, and the effigies went up in spectacular flames. This ceremony was duplicated all over Delhi and other cities in India. I think the most remarkable aspect of the ceremony was that although there were security people at the entrances, security was largely absent inside and near the official podium.

As we traveled to and from the celebrations and to other meetings in India, to us it really brought home the burgeoning traffic crisis there. My team and I visited Delhi, Mumbai, Pune, Bengaluru (formerly known as Bangalore) and some more remote corners of the country during this trip. The migration of farmers from rural areas to cities combined with the explosion of car and motorcycle ownership is creating infrastructure bottlenecks, which won’t likely be cured quickly.

Motor Vehicles in India

India appears to be on its way to becoming a major market for motor vehicles. Annual car and truck sales currently in India are roughly one third of the 15 million units produced in the U.S., but the pace of growth has been high.1 The total population of registered motor vehicles in India numbered more than 100 million in 2008- 2009, with consumer vehicles (passenger cars, motorcycles and scooters) accounting for about 4/5 of the total. Considering India’s population of 1.22 billion, if India had the same proportion of vehicles per capita as the U.S. (which numbers some 246 million vehicles 2) it would require about 970 million automobiles! I think the industry’s potential is easy to see.

More prominent than cars and trucks in India are the two-wheelers (motorcycles and motor scooters) with annual sales running at about 14 million3 in addition to about a half million famous “tuk tuk” three-wheelers seen serving as open air taxis on the streets of India, Thailand and other parts of the emerging markets world. The infrastructure required to handle the swelling traffic is already bursting at the seams. Although there are about 5 million kilometers of roads in India, only a fraction are national or state highways or urban roads which would be considered of reasonable quality. 4

To get a better insight into the industry, we visited a large automobile manufacturing company in India, which produces both consumer and commercial vehicles. Production of one of its popular low-cost vehicles has been running about 9,000 units a month. I was surprised to learn from one of the executives that a large part of the firm’s revenues now came from recently acquired foreign brands. This is evidence of the trend we’ve seen in the past few years, where many emerging market companies have been acquiring developed-market brands, or engaging in joint ventures.

My team and I also visited another vehicle manufacturer which specialized in two-wheelers for more insight into India’s market for motor scooters and motorcycles. Annual sales were brisk not only in their domestic market but neighboring markets, as well as Africa. They also manufacture three-wheelers which serve as taxis all over Asia. When we met with one of the founder’s sons at their corporate office and R&D center, he reported being very focused on these more energy-efficient and space-saving forms of transport.

In the past, it was difficult for India to compete against the Japanese in the vehicle market, but this company in particular seemed to have found some success. Its executives felt there were two reasons why people might choose a motorcycle over a car or other form of transportation: to commute and for sport. There has been a trend toward larger and faster motorcycles to satisfy not just the basic needs of commuters, but to also supply the excitement of a powerful and fast sport vehicle. Thus, they launched products with larger motors, and a premium brand name.

From these visits, it is clear to me that India is motoring toward an interesting future, one filled with investment potential in infrastructure development and transportation.

1. Source “The Auto Industry Shows Good Growth in 2010,” Society of Indian Automobile Manufacturers Press Release (New Delhi: January 11, 2011),

2. Sources: United States Census Bureau, 2009; U.S. Federal Highway Administration, Highway Statistics, annual.

3. Source: “Indian Two-Wheeler Industry,” ICRA, May 2012. ”

4. Source: Ministry of Road Transport and Highways, Government of India.

The information provided in this posting is not a complete analysis of every material fact regarding any country, region, or market. Comments, opinions and analyses contained herein are those of Dr. Mobius and are for informational purposes only. Because market and economic conditions are subject to change, his comments, opinions and analyses are rendered as of the date of this posting and may change without notice. His opinions are intended to provide insight as to how he analyzes securities and his commentary is not intended as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. Reliance upon information in this posting is at the sole discretion of the viewer. Please consult your own professional adviser before investing.

All investments involve risks, including loss of principal. Investments in foreign securities involve special risks including currency fluctuations, economic instability and political developments. Investments in emerging market countries involve heightened risks related to the same factors, in addition to those associated with these markets' smaller size, lesser liquidity and lack of established legal, political, business and social frameworks to support securities markets. Such investments could experience significant price volatility in any given year. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions.

Data from third party sources may have been used in the preparation of this commentary and neither Dr. Mobius nor Franklin Templeton Investments has independently verified, validated or audited such data. We do not guarantee its accuracy.

Franklin Templeton Investments and Dr. Mobius accept no liability whatsoever for any loss arising from use of this posting or any information, opinion or estimate herein.

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