When you have a company as big as Apple Inc. (AAPL), it’s hard enough to find new ways to grow. That’s why Apple’s intention to expand in the Indian market amid a period of sluggish global growth is very welcome news.
Apple asked the Indian government for permission to open Apple Stores in the subcontinent. At this point, Apple products are available only through third-party resellers.
Should Apple get the OK, it could help boost growth in one of the company’s most important markets.
In addition to the law of large numbers, Apple’s growth prospects are constrained by tepid U.S. growth, weakness in Europe and — most worrisome — a decelerating Chinese economy.
Apple earnings have exposure to demand from China, which has become an area of weakness for pretty much all multinationals. The Chinese economy is slowing down at a faster-than-expected rate, and the stock market cratered earlier this year. It’s only natural to expect those two forces to weigh on Apple stock results.
On the one hand, total iPhone sales in Greater China, which includes Hong Kong and Taiwan, jumped 120% in the most recent quarter. Total revenue from the region nearly doubled to $12.5 billion.
The downside comes from the fact that revenue from China fell 5% on a quarter-to-quarter basis. As much as Apple has China at its back, analysts are concerned that the year-over-year numbers will fade if current trends persist.
Apple Seeking Refuge in India
However, India — the world’s second largest country — is a comparative bright spot on the world economic stage. The International Monetary Fund expects the Indian economy to expand by 7.3% in 2016 and 7.5% in 2017, driven by increasing urbanization and a swelling middle class.
That makes India the world’s fastest growing economy by a wide margin. China — Apple’s No. 2 market and once a volcano of hot growth — is rapidly cooling off, with economic expansion targeted at 6.3% and 6% over the next couple of years.
The U.S. — Apple’s largest market — is targeted for growth of just 2.6% in both years. Europe is even worse.
So, India.
Despite widespread poverty, India is the fastest growing smartphone market in the world. Indeed, it could surpass the U.S. to take second place by 2017, according to market researcher Strategy Analytics.
Government restrictions have prevented Apple from opening Apple Stores in India, but the government may relax regulations on foreign investment.
Apple currently account for less than 2% share of the smartphone market in India, so clearly this is a no-brainer if it can get consumers to pay up for pricier phones.
No, this move doesn’t move the needle on Apple stock today, but it does bolster the fundamentals. One day in the not-too-distant future, India could be an important tailwind for Apple stock.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
