Economy

Over the years, I’ve learned there are only 2 phases to journey of attaining financial independence.

• Dreaming of the life you want. Obviously, you need to have a portrait of the life you wish to live.
• Second, making a plan by thinking outside the box to live the life you want. This can also mean that you need to continuously challenge your comfort zone and perspective to try new ideas and methods.

Lack of money is often one of biggest hindrances in achieving your long term goals. Read more here.

So as we embark on this New Year, with new goals, we wish to make the second part easier for you. Every year we make resolutions and say, “This is the year I’m finally going to follow my dream.” And year after year, the portrait of these dreams doesn’t seem to take the colors it should have.

The Golden Opportunity For Investor

The new market times are here, which provides an investor with fresh opportunities a unique chance to work on their dreams. But why we say – This is a golden time for investors like you.

You already know that GDP is set to double by 2025. This means from $2.9 trillion now; it is just a matter of approx. 5 years that India will become a $5 trillion economy. Now, that’s tremendous growth! However, many investors still have a question: Can India become a $5 trillion economy?

Why The Time For Growth Is Now?

Here’s why we think $5 trillion is doable:

• Firstly, doubling our economy in next five years means India has to grow at a real growth rate of 7-8% YoY assuming 3-4% inflation YoY i.e. 10.5-11.5% of nominal growth. The number may look challenging to a few, but let me tell you – We have been growing at this pace for the last 5 years. This means we just have to continue the pace.
• Along with this, rupee-dollar equation needs to stay stable at 71-72, which should not be a big challenge!
• Government’s relentless initiatives in the right direction to drive financialization of savings i.e. shift from physical to financial assets

Considering the appropriate policy response and revolutionary reforms, India is more resilient to external shocks today. But there’s more to this!

The biggest growth driver would be increase in per capita income.

As per the various projections, per capita income is expected to increase from $2,000 now to $3,500 by 2024. An increase of over 75% in per capita income! This would mean a 4-5x discretionary spending power with each individual, including you and me! Crazy, isn’t it? But how it will help India achieve its target?

If you look, out of $2,172, $1,500 is spent on basic consumption needs, which leaves only $500 for discretionary spending. As you can see in the table below, when India touches ~$3,500 by 2024, this $1,500 will increase only marginally, leaving Indians with more surplus of ~3-3.5x for discretionary spending.

What does this mean to you? Considering the favorable demographics with high aspirations plus government’s focus on urbanization and Digital India, India will –Buy, buy & buy!

This will lead to an increase in the standard of living – People will buy more luxury goods, branded clothes and travel more. India’s consumption has high contribution in GDP, hence multiplier effect would be higher for India as compared to other emerging economies.

Why $2,000 Is An Important Number?

India’s current per capita income stands at $2,172. If you look at other economies, $2,000 number has been an inflection point for an economy to witness exponential growth of 2-4x in its consumption expenditure, i.e. amount spent on daily goods and services.

Let’s look at a few examples:

If you look at the above chart, we are exactly where China was in 2006. And then what happened? China grew from $2,111 in 2006 to $3,838 by 2009, an increase by almost by 82%. We are talking of achieving similar growth in 5 years, what China did in 3 years i.e. $2,172 per capita now to $3,500 by 2024.

Now, The Real Question – What About The Indian Stock Markets? Will They Also Grow?

India doubled its GDP from $1.37 tn in 2009 to $2.9 tn in 2019. But do you know that, while GDP doubled, Nifty grew by ~3.5 times during this period. If history can repeat, this means we will repeat similar humongous growth in just 5 years as India doubles its GDP by 2025. The multiplier effect will be seen in the stock markets as well, as Indian indices will grow as GDP grows! But as Indian indices shall grow, not all stocks will grow. So what you should do? Identify & Invest In Fundamentally Sound Stocks That Help You To Experience True Financial Independence!

We Wish To Help You!

As India grows, we’re here to help you identify businesses…

Businesses backed by rigorous research

Businesses that have a high potential to grow with India’s growth story.

Businesses which are mispriced due to market volatility. Read more.

Businesses that are identified after understanding your goals, investment horizon, risk appetite, etc.

Businesses that you can track using our smart dashboard

By using this approach, we’ve helped more than 9,000 investors take the first step towards wealth creation. And talking about the performance, our model portfolio has delivered 400.53% returns over the last 5 years. Checkout our performance here. So, rather than procrastinating the journey that leads you towards your dream life or working really hard for it, its time to ponder upon how you can work smart by making your money work for you in 2020! Click here to know more.

Read more: About Research and Ranking.

India is well-placed to become a $5 trillion economy by 2025. Perhaps, we all know this, right? But what if I tell you, that the young Indians would primarily drive this growth. Surprised?

Before I come to how, let me tell you quick facts.

• India is a country with 450 million millennial out of 1.3 billion population. This means, 35% of the population are millennials. Now, millennial are anyone who is born between the years 1981 and 1996.
• As per the report by Niti Aayog, Strategy for New India @ 75 and McKinsey Global Institute, around 18% of the global population lives in India.
• India has the 2nd largest English speaking people in the world, which is just 10% of the total population as of now. It is expected to quadruple in the coming decade.
• The literacy rate in India has gone up to approximately 80% as compared to 65% in 2001.
• The unemployment rate was projected at around 3.5% in 2018 by the International Labour Organisation (ILO). By 2027, it estimates that 116 million people would get added to the Indian workforce as compared to only 467 million people worldwide.

Coming to the most important, by 2022, the median age of India will be just 28 as compared with 37 in China and the U.S., 45 in Western Europe and 49 in Japan.

What does all this mean to Indian economy?

In one of my discussion with Manish Goel, he pointed out, “The key driver for any economy that fosters its growth, sustainability and competitive is demographic dividend. India is still yet to unleash the miracle of this demographic advantage that India has over other economies. Today, there are more than 650 million mobile phone users in India, which makes it a bigger smartphone market when compared to U.S. and second to China. The biggest assets for the country would be human capital and data, and India has both of them.”  Read more on what makes me so bullish on India here. 

Here are three ways the youth demographics will be key driver of growth in future:

1. More working population:

• India boasts of 450 million millennial and 470 million Gen Z kids. That’s a huge number!
• Out of 1.3 billion population, India\’s Labour Force Participation Rate stands at 51.8% as on Dec 2019.
• By 2027, it estimated that 116 million people would get added to the Indian workforce as compared to only 467 million people worldwide.
• Along with an increase in working population plus favourable median age, India will be able to realize true potential of the demographic dividend that it enjoys.

1. Education: India produces the maximum number of Science, Technology, Engineering and Mathematics (STEM) graduates.
2. Sheer scale: No matter how you dissect the market segment of India, you end with the size of another country. Today, there are approximately 300 million smartphone users in India, which is the population of the U.S. Maharashtra population is 114 million which is slightly less than Japan’s population of 126 million. Any company that can tap the majority of any market segment will witness humongous growth in the future!
3. Increased digital connectivity:

• India is a land of young population with increased access to internet connectivity.
• Today, there is a humongous size of young, vibrant and diverse millennial with access to data, e-commerce and social networks. This unparalleled growth in internet connectivity and data has led the Indian economy towards becoming the second-largest digital consumer base in the world.
• 650 million mobile phone users, out of 300 million are smart phone users. Young people with smartphones means: buy, buy & buy!

1. High aspirations:

• Today, young Indians have more income at their disposal.
• This will lead to high aspirations among the youth to increase their standard of living– Young Indians would want to travel more, eat better food, shop branded clothes, buy more luxury goods, etc. i.e. resulting to high discretionary spending.
• This increased discretionary spending will result to higher consumption expenditure among Indian households, which will ultimately drive GDP growth.

Having said this, India also needs to understand that if it wants to leverage on this demographic opportunity, it will have to increase the efficiency of the economy, work towards the digital future as well as focus on improving the quality of education and healthcare facilities in India. Then only, we can genuinely unleash on this magic of human capital to reach the destination of $5 trillion economy. Click here to know more about investment opportunities which will outperform over the next 4-5 years.

Read more:  How Long-term investing helps create life-changing wealth – TOI.

The killing of Qasem Soleimani, Iran’s top military commander on Friday in a drone attack by USA sparked a new round of tensions between the 2 countries and sent oil prices spiralling. Iran has since then vowed retaliation while American President, Donald Trump has tweeted that the U.S. will strike back at 52 targets in Iran “Very Fast And Very Hard. “

Indian share markets responded negatively to the entire episode with India’s benchmark indices the BSE Sensex and Nifty falling sharply by over 800 points and 235 points by noon on the first day of the week. If the situation between USA and Iran escalates further, it will be a double blow for the Indian economy.

Impact on Indian economy

India imports almost 84% of its crude oil requirements from middle-east Asia. Although India is no longer importing oil from Iran, India\’s biggest oil suppliers in the region include Kuwait, Iraq and Saudi Arabia. Any armed conflict in the Gulf region will impact India\’s oil supply lines, adversely resulting in the need to purchasing oil at higher prices from suppliers outside the area. Increase in oil prices will also fuel inflation in the country, which is currently very much under control.

Any conflict in the region will also affect the jobs of Indians working there and endanger the $40 billion in remittances India receives from the Gulf region, which is a critical source of foreign exchange.

As a share market investor is it time for you to worry?

From a long term investor’s perspective, there is absolutely nothing to worry as stock markets have seen such situations before and even worse. In the last two decades, there have been several such occasions when tensions have spiked up in the Gulf region and elsewhere with the threat of blowing into a full-scale armed conflict.

In 2019, Iran and USA had been at loggerheads with numerous incidents such a downing of hi-tech American drone by Iranian missiles, suspected Iranian attacks on oil tankers in the region and attacks on Saudi Arabia’s oil facilities.

The best example of how quickly Indian stock markets recover from such tensions is evident in the below graph.

On 14th September 2019, armed drones struck Saudi Arabia’s two major oil plants, affecting nearly 50 per cent of the country’s global supply of crude. A rebel group based in neighbouring Yemen claimed responsibility for the attack. However, USA, an ally of Saudi Arabia, blamed Iran for it, leading to a rise in tensions in the region. Markets reacted negatively to this with Nifty falling by almost 300 points over the week, as the Gulf region was on a boil. However, within a week, the markets not only recovered but touched new highs with Nifty touching 11,600 levels.

Effects of a war, if it happens will be disastrous not just for Iran, but also for the USA which is on the verge of recovering from a slowdown but also many more countries. As of now, only time will be able to tell if the tensions will rise further or simmer down.

But as mentioned earlier, there is nothing for a long term investor to worry. Unlike in the past decades, the Indian economy is now much more resilient and isolated from the impact of global events to a greater extent. Read more about India’s strengths.The impact of such events like tensions in the Gulf will be a limited one. Just look at the bigger picture and consider this correction as an opportunity to accumulate more of quality stocks at bargain prices. Read more

Read more:  How Long-term investing helps create life-changing wealth – TOI.

The experiences that we often come across in our day to day activities in life also offer many exciting lessons. Some of these lessons are relevant in stock market investing too.

Here’s an interesting experience shared by one of our readers who also happens to be a long term share market investor.

“I recently attended a party with a huge gathering and sat in the front row of seats. A lady started distributing Paneer tikkas from the last row, and unfortunately, it didn’t reach us as we were sitting in the first row.”

“Another lady started serving soft drinks, from the first line of seats. But eagerly, I had already moved to the last row and, so, the drink didn’t reach me. I felt irritated and stood up to leave.”

“But, then, I saw two ladies again, each with a big tray of spring rolls. This time, I tried to be smarter by sitting in the middle row. One of the ladies started sharing the rolls from the front row, and the second lady started distributing from the back row. When they reached the middle row where I was sitting, it got over again!”

“Frustrated, I bent my head, looking down at the floor. Precisely at that moment, a third lady tapped me on the shoulder and held out her tray. I stretched my hand towards the tray and guess what was in it?”

“Toothpicks!”

Honestly, I enjoyed reading this experience as much as you must have did. But did you notice the moral of the story and its relevance in investing?

Moral of the story and its importance for stock market investors

Well, the moral is don’t try to time the markets by trying to catch the highs or lows.

If you invest in good stocks and are willing to wait patiently, good returns are bound to follow. On contrast, those who attempt to time the market end up neither catching the lows or riding the bull wave.

We often come across some common statements by stock market investors who try to time the market, such as:

“Stock markets are correcting. I will wait for the prices to bottom out before investing.”

“Stock markets are at new highs. Now it is risky to invest.”

While these statements may be partly true, the whole point is in the process of waiting for the bottom, and investors miss out on the chance to participate in the rally when the market cycle changes.

Nobody can predict the next market correction. It could be just around the corner. Or may not happen for another decade. But yes, by waiting on the sidelines, an investor will find himself losing out on some of the stock market’s best periods of returns. Click here to read more about behavioural biases in investing.

As rightly said by Peter Lynch “Far more money has been lost by investors trying to anticipate corrections than lost in the corrections themselves.”

The right way to invest

Maintaining an ideal portfolio of 15-18 stocks from diverse sectors bought based on strong fundamentals is the best way to invest. Such a portfolio will be relatively independent of the overall market movements with the ultimate goal of long term wealth creation. Know more.

Read more:  How Long-term investing helps create life-changing wealth – TOI.

The current crisis may or may not be an opportunity. But before reaching any conclusion, let’s try to understand what really led to the mess which PSU banks find themselves in.

For years, PSU banks lent aggressively to showcase their ever-increasing assets (loan) portfolio. Unfortunately, very little attention was paid to the quality of assets and probability of repayment. Since quality of borrowers was not good, some borrowers started skipping payments and some even failed to repay the loans completely. And we are talking about large multi-crore loans here.

These failures and chances of future loan defaults (bad loans), required banks to make provisions. But since making provisions meant having lesser money to lend to new borrowers and also reduced profits, banks kept postponing NPA recognition and this led to the buildup of stress in the banking system.

To the uninformed, it might seem odd to make provisions before actual losses. But making provisions is justified. If the losses from stressed assets materialize, banks wouldn’t suddenly declare huge losses – as they can set off those losses against the provisions already made.

In its periodic asset quality review, RBI decided to tackle the problem upfront. It set a deadline of March 2017 for all banks to clean up their balance sheets and recognize all stressed assets.

The message from RBI was clear – deal with the problem now instead of postponing and worsening it.

Since the size of unrecognized stressed assets was huge and deadlines were nearing, banks were virtually arm-twisted to set aside massive amounts of money as provisions. Now making provisions reduces profits. So when banks started this exercise from Sep-Dec 2015 quarter onwards, it obviously reflected in their results. Profits of most PSU banks were wiped out entirely!

As of end of March 2016, size of NPAs stood at an eye-popping Rs 6 lac crores. Large provisioning have led to 15 of 27 banks posting net losses in fiscal 2016.

Recognizing the scale of problem at hand, investors shunned PSU banks shares and many fell by almost 50% in matter of months (till January 2016). Since then, stocks have recovered somewhat due to general uptrend in market.

Now comes the question – are all bad loans recognized and provided for?

The answer is not an easy one.

Some banks have been honest enough to say that there is still pain left in the system. And going forward, they would further provide for more stressed assets. Others are claiming that they have already done what was required. But whatever is being said cannot be taken at its face value. It’s best to expect that NPA figures will be revised upwards in near future. So better brace for that scenario.

Government recognizes the importance of having a stable banking sector and hence, had announced a comprehensive reforms program named ‘Indradhanush’ last year. Though the program dealt with 7 different aspects of banking like management appointments, establishment of Bank Board Bureau, governance reforms, etc., the 2 main aspects from the context of NPA crisis were capitalization and de-stressing of bank-books.

The de-stressing is already underway via provisions.

Regarding recapitalization, the original plan was to infuse Rs 1.8 lac crore in PSU banks by 2018-19. The government had committed to infuse Rs 70,000 crore of this. Rest Rs 1.1 lac crore would have to be managed by banks through markets (Source: Government/RBI announcements).

In August 2015, the government had announced that it will follow the below schedule for infusing capital:

FY 2015-16: Rs 25,000 crore
FY 2016-17: Rs 25,000 crore
FY 2017-18: Rs 10,000 crore
FY 2018-19: Rs 10,000 crore

(Source: Government/RBI announcements)

More or less, the government is delivering on this schedule. But many sector experts feel that government’s estimates of capital requirement are not correct. In light of worsening of the problem, the government might have to revise its contribution upwards. Just few days back, the finance minister (on sidelines of a conference) indicated that the government will not hesitate to exceed its contribution, if there is a need.

Though there is no agreement between experts’ and government’s estimates, the RBI and government have assured full support to all banks.

Another point to note is that not all stressed assets turn into bad loans (NPA).If the losses don’t materialize, the banks can write-back provisioning to profits.

In recent times, there have been a slew of RBI initiatives to help banks recover the money they have lent. Some of these like Strategic Debt Restructuring (SDR), 5/25 Program, increased sale of bad assets to ARC, etc. are expected to lower the impact of bad loans somewhat. Then there is growing discussion to merge some of the weaker banks with stronger ones and monetize non-core assets to bring in more capital to strengthen the banks.

All in all, the government and RBI do seem to be working in tandem to address this crisis. Even history tells that whenever Indian banks have faced a crisis, government has left no stone unturned to protect this sector from failing. This is the reason why failures in Indian banking are much lower than what have been in developed nations.

So having said that, it is wrong to paint all PSU banks with the same brush. Once the book-cleanup exercise is over, there is no doubt that most PSU banks will be much stronger than what they are now. And once that happens, market valuations too will improve to come in line with improved business.

Read more: About Research and Ranking.

As I write about the slowdown of GDP growth and a slowdown in the overall Indian economy being a short-term phenomenon, I don’t just get mails from you all, but get questions from few friends and relatives as well on why I am so bullish?

Let me answer this question for you today by quoting a few reports from Niti Aayog, Strategy for New India @ 75 & McKinsey Global Institute’s – India Report.

1. Demographic Dividend: The Indian population is now at around 1.3 billion people, i.e., around 18% of the global population lives in India. India has the 2^nd largest English speaking population in the world, and it is just 10% of the total population as of now. It is expected to quadruple in the coming decade.

   The literacy rate in India has gone up to approximately 80% as compared to 65% in 2001. The unemployment rate was projected at around 3.5% in 2018 by the International Labour Organisation (ILO). By 2027, it estimates that 116 million people would get added to the Indian work force as compared to only 467 million people worldwide.

   The median age by 2030 for Indians is projected to by 32 years. The same for USA is projected to be 39 and for China at 43.

2.  The Rise Of Middle Class & Urbanisation: According to a report published by the World Economic Forum (WEF), India, by 2030, will add close to 140 million people in the middle-income category and about 21 million to the high-income households. The upper middle-income households will drive 47% ($2.8 trillion) of total consumption, and high-income households will drive another 14% ($0.8 trillion), compared to 30% and 7% respectively today.

   The same report also suggests that the below poverty line households will reduce from the current 15% households to less than 5% of households by 2030.

The rise in the middle class will drive both, household savings as well as consumption, giving an overall boost to the economy. The middle class, as most of them would be moving up from the lower thresholds, will be buying more electronics, two-wheelers, four-wheelers, etc.

We have seen a big migration of the population from rural India to urban India along with the strengthening of a few tier 1 cities in to metros and many tier 2-3 cities becoming tier 1 cities over the past few years. As of now, only 32% of the Indian population lives in the urban India and this is expected to grow to 40% by 2025.

For now, the 32% of urban population accounts for around 60%+ of overall consumption. Now, imagine this growth possibilities when the number goes up from 32% to 40%?

1. Rise of Household savings: With the strengthening of the middle class, it would surely give a great boost to overall household savings in India. This has been extremely evident when we see that the Gross Savings Rate in India which was lower that 10% in 1955 has gone up to over 30% now.

   There’s more to this, this is even after the fall that we saw in 1980s followed by a steady rise in 1990s and then a small fall in early 2000s and a steep rise thereafter. Like I always say, the fall right now is just giving me an indication of what to expect in the near future.

1. Let me ask you a question here: When households move from the lower-income category to the middle-income category, would they not spend & save more? Most probably both, or worst case scenario, at least one of them?

2. Roar of the Digital Tiger: The nationwide internet penetration rose from 8% in 2010 to almost 25% in 2016. It is most likely to grow to 55% or more by 2025, when the number of users will likely reach 850 million. The estimated total value of e-retail is like to reach $130 – $150 billion. In other words, they would be around 8 – 10% of total sales by 2025.

The digitally influenced spending is currently approximately $45-50 billion p.a. and is projected to increase more than tenfold to $500-550 billion, it would account for 30%-35% of all retail sales by 2025.

Read more:  How Long-term investing helps create life-changing wealth – TOI. 

August continued the uptrend of previous two months and became the 3^rd consecutive month that gave positive returns. The Benchmark Nifty50 gave monthly returns of 1.71% and has continued its new found hobby of making fresh 52-week highs at month ends.

Though returns given by major indices were not as great as in July*,the numbers nevertheless were respectable. Nifty Next50 and Nifty500 did slightly better than Nifty50 and gave 2.44% and 2.19% returns respectively.

*July returns – Nifty50: 4.23%, Nifty Next50: 9.37%, Nifty500: 5.00%

GST Passage

One of the biggest economic reforms in last 2 decades saw light of the day. The Rajya Sabha passed the GST Bill on 3^rd August 2016.(Update – At the time of writing, more than half of all the states had ratified the bill – which sets a clear path for Presidential approval).

GST is expected to give a boost of 0.9% to 1.7% of GDP in long term (source – study commissioned by 13th Finance Commission). The actual implementation is expected to happen on 1^st April 2017 and will help simplify tax structure, encourage compliance, lower costs and broaden the tax base in India. (We have written extensively about GST implementation in last month’s newsletter too – .

Change in Guard at RBI

Other big news of the month was appointment of Mr. Urjit Patel as RBI’s next governor. Currently, he is serving as RBI’s Deputy Governor. Alumni of Oxford, Yale and LSE, Mr. Patel has also worked at IMF’s India office in early 90s.

Mr. Patel is known to have a zero tolerance for inflation. The Urjit Patel Committee headed by him, had recommended inflation targeting and shift to use of Consumer Price Index (CPI) as the main measure of inflation for the RBI (against earlier use of Wholesale Price Index i.e. WPI).

So this appointment sends clear message that government will continue to push its inflation agenda.

On Tap Banking License

August also saw release of recommendations for On-Tap licensing of Universal Banks. When implemented, this will do away with the current approach of bank licensing being once-in-a-decade kind of an event. Instead, the window for getting a bank license from RBI will remain open throughout the year. This is a big reformative step for the Indian banking sector.

But we are of the view that despite the new ‘on-tap’ regime, there will be no rush to establish new banks. Banking is a complex business and given the stringent guidelines, there will be very few takers in initial years. The commonly held view that NBFCs might be eager to convert into banking entities is also speculative and doesn’t hold much substance.

Quarterly GDP numbers came down

India’s GDP growth slowed down in the first quarter of 2016-17 – growing at 7.1% in Apr-Jun quarter against 7.9% in Jan-Mar quarter (Q4-2015-16).

The government is targeting 8% growth in current fiscal but a low figure in the first quarter has made the target difficult to achieve.

But it must be remembered that last year, 7.6% growth was achieved despite failures of two back-to-back monsoons. Fortunately, the monsoon has been good this year. So contribution of agriculture will be much better than previous two years.

So good monsoon combined with the anticipated boost to urban consumption from pay hike, are expected to significantly push economic growth in the remaining quarters of 2016-17.

RBI has also acknowledged that in absence of any worthwhile pickup in private sectors’ investment activity (due to excess capacity, high debt levels, etc.), only a boost from agriculture and consumption recovery can help economy clock an 8% plus growth.

Policy Rates

RBI maintained status quo in its monetary policy meeting in August. With new governor joining in September, there might be a scope of rate cut (as early as in October) if inflation starts slowing* and if the monsoon signs off on a good note.

* July 2016 CPI inflation spiked unexpectedly to 6.07%, which is a new 23-month high. 

Pre-Festive Push to Auto Sector

Sales figures of almost all automobile companies saw a good increase ahead of the upcoming festive season. The major passenger-vehicle makers saw year-on-year sales increase of 15% in August.

As rural sentiments improve due to better monsoon, the sales in festive season are expected to be better than previous two years. But there is a risk that people might postpone their large-ticket purchases like vehicles in light of the expectation that GST implementation will bring down vehicle prices.

R&R Portfolio

 Coming to our portfolio, we remain convinced about the long term India story in spite of the increase in valuations. Apart from the expected passage of GST bill, we believe that a lot of investments and economic/policy decisions taken in last 2 years have set the stage for the next upmove.

Our portfolio remains adequately diversified across sectors and themes. The month of July saw no change in our holdings and sector allocation remains the same.

We appreciate you for taking time to read this message. Do share your views/comments by email/comment section below.

Thanks & Regards

Team Research and Ranking

Read more: About Research and Ranking.

In our previous stories, we’ve been talking to you about the potential impact of the current actions by the government on the Indian economy. We also spoke to you about why we feel the goal of $5 trillion seems more possible than before and to back it up we spoke about the auto sector and the infrastructure sector.

In this story, let us talk to you about how we as individuals or as households contribute towards the growth of the Indian economy. This will also tell that irrespective of some short term slowdowns, the Indian economy cannot suffer in the longer run.

Indian Economy growing consumption story

Let’s start with a history of India’s Private Consumption Expenditure

The chart is extremely self-explanatory, isn’t it! It has grown around 8x in a 20-21 year period, irrespective of short-term hiccups such as Lehman crisis and many others. And whosoever thinks or comments that it could see a long-term slowdown, would surely need to introspect once again.

The latest World Economic Forum (WEF) report states that India is poised to become the third-largest consumer market by 2030 with consumer spending expected to grow from $1.5 trillion to approximately $6 trillion by 2030. Domestic private consumption accounts for 60 per cent of the country’s GDP, so this another positive factor for the Indian economy.

The rise of ‘India’s affluent middle class

The growth of a young population with rising incomes is creating a large emerging middle class in India. This class of people have both the purchasing power and the desire for a better lifestyle.

India increasing demographic dividend

India is a young country with nearly 65% of its population falling below the age of 35.  This is an opportunity to drive economic growth on the back of the rising working-age population.

The nation is expected to add almost 10-12 mn people to its workforce every year over the next two decades, with the working-age population crossing the 1 billion mark by 2030.  While other growing economies will have a much older population, India’s young population could cater to the demand for skilled workers globally.

Unlike China, India is an extremely consumption based economy. We are a young society with a lot of growth potential and even more aspirations.

Read more: About Research and Ranking.

We have been talking about $5 trillion economy. But it’s not just us! Many analysts, rating agencies have pegged India’s economy to reach $5 trillion-mark by 2025. The Modi 2.0 government has also envisioned a goal of touching the milestone of $5 trillion by 2025 and $10 trillion by 2030.

And these are not just goals. It is backed by numbers that are screaming GROWTH for the Indian economy.

So which are the factors that are adding fuel to our growth story? We hope you have read Part 1 of this story. But if not, you still can by clicking here. Coming back, we spoke about how the automobile sector shall unlock many wealth creation opportunities for Indian investors.

Today, we shall highlight the next big sector for you.

Infrastructural Developments – Leapfrogging India’s Growth Trajectory

India is expected to emerge as the third-largest construction market globally by 2022. With the real estate sector estimated to reach $650 billion by 2025, cross $850 billion by 2028 and touch $1 trillion by 2030.

In the budget recently, the government announced a continued focus on housing for all by 2022.

It has proposed setting up 1.95 crore houses under Pradhan Mantari Awas Yojna (Rural).

It also offered an additional tax deduction of Rs. 1.50 lakh on interest paid on affordable home loans (priced below Rs. 45 lakh) taken up to March 2020, taking total interest deduction of Rs. 3.5 lakh.

India’s national highway network is expected to cover 50,000 kilometres by 2019.

The Government has given a massive push to the infrastructure sector by allocating Rs. 4.56 lakh crore for the sector.

Communication sector allocated Rs. 38,637.46 crore to development of post and telecommunications departments.

The Indian Railways received an allocation of Rs. 66.77 billion. Out of this allocation, Rs. 64.587 billion is for capital expenditure.

Rs. 83,015.97 crore allocated towards road transport and highway.

Rs. 3,899.9 crore to increase the capacity of Green Energy Corridor Project along with wind and solar power projects.

Allocation of Rs. 8,350.00 crore to boost telecom infrastructure.

Based on this growth, think about the impact it would have on realty, cement, metals, and other such related industries.

And yes, infrastructure will continue to be one of the biggest employment providers for the country as well. Rural India is just about opening up for now, with 50-60% of the Indian population belonging there.
Along with more transparency and clarity on growth vision from the government, the future of India looks bright. India looks unstoppable and ‘India’s outlook for 2030 looks bright with opportunities in abundance.
And as you know, a healthy economy will always reflect in the stock markets. However, not all stocks shall deliver winning returns for you. You have to look for leaders that can ride on India’s growth trajectory. The leaders can be enjoying a market dominance, unique product or business model, high stakeholder confidence or innovative technology. You need to conduct due diligence before investing your hard-earned money into it.

Read more:  How Long-term investing helps create life-changing wealth – TOI. 

A lot has been spoken in the recent past about India to achieve the $5 Trillion by 2025 & $10 Trillion economy by 2030-32. But how is the big question people have in their minds.

Here is some analysis around what we feel could be the biggest drivers on the path ahead.

Let us start with the auto sector – this has been one sector that has got hit over the past few months.

Going into the history, here is how the auto sector has seen growth over the path 10 years.

In the graph above, it is extremely evident that the auto sector has had a great growth run over the past 20 odd years. From being much less than 100,000 vehicle sales a month in 2002 to rising 4 fold at around 400,000 vehicle sales a month. The graph also shows that the ride hasn’t been a smooth one. But every time there has been a fall, we can almost always see the jump in at a faster pace almost right away in the following few months.

Currently, the auto sector contributes more than 7% to India’s GDP. The Automotive Mission Plan (AMP) 2016–26 aspires to increase this contribution to 12 percent and targets the growth of 3.5 – 4 times the current value of $ 74 billion to $ 260 billion – US$ 300 billion by 2026 and also provide approximately 60 million jobs until then.

As per the report by McKinsey, India is expected to emerge as the world’s third-largest passenger-vehicle market by 2021. The drivers behind this growth can be attributed to urbanization, an increase in consumption class and reforms and regulations initiated by the government.

Now imagine this, we live in a young India today. Undoubtedly, we all have dreams and aspirations. As soon as we get jobs, as soon as we get increments, as soon as we start or expand our businesses, we all think of either buying our first car or a bigger car. Yes, there can be a small slowdown, but will the young Indian stop buying cars & two wheelers? The answer is a big fat NO!

Along with this, we have the government working towards doubling farmer income by 2022. If this actually happens and it will in turn boost consumption in the rural India as well. The Indian rural market is still a relatively untouched market, and one should not forget, almost 60% of India still stays in villages.

With India’s $5 trillion growth story intact, this sector is well-placed to leverage the burgeoning economy over the long run. And, due to the swelling of this sector in the next few years, many wealth creation opportunities shall open for Indian investors. 

Read more:  How Long-term investing helps create life-changing wealth – TOI.