India Growth Story – Crystal ball gazing
India – Eye on $8.5tn Economy in 10 years
•Intent to grow manufacturing from 15% to 25% of GDP by 2025.
•Atmanirbhar Bharat – Economic Package of 20 lac crs.
•Production linked incentive (PLI) schemes to attract domestic & foreign investors; Introduced for 14 sectors
•Leverage on China +1 and Europe +1 strategies.
•Businesses diversifying supply chains and India emerging destination of choice.
•Opening up of Defence sector
•Introduction of GST – creating a unified domestic market
•Corporate tax cuts
•High global market share in services exports will further increase as corporates get accustomed to remote work practices.
Select Opportunities
•Opportunity #1 – Pharma, API and Specialty Chemicals:
•40% of generic formulations imported by the US are from India [amounting to ~$30 bn]
•The global API industry is $210 bn. China has 75% global share in API, India has 15%. The migration of API industry to India presents a massive opportunity for the country
•Opportunity #2: Electronics
•India has a $60 bn deficit with China when it comes to chemicals and electronics. The Indian govt’s PLI scheme of $25 bn will help create domestic market leaders. Already Apple is exporting more than $10bn per annum of iPhones from India.
•Opportunity #3: Defence
•India spends $100 billion per annum on defence. 64% of its allocated funds for military spends has been targeted to be spent on buying from indigenous firms.
•Opportunity #4: IT and allied Services
•India currently exports $200bn per annum of IT Services. The Services GDP of Western economics is $15tn. Even if 10% of this migrates to India, the Indian IT Services industry will grow manifold.
Source: Marcellus Investment Managers
The Digital Edge
•Now, digital infrastructure as important, as physical one.
•India has one of the largest public digital infrastructure based on the unique identification system – AADHAAR.
•Further layers being built to leverage this digital infrastructure
•Better match consumer and buyers
•Facilitate transactions
•Ease cost of doing business
•One of the largest national roll-out of 5G will further support the digitization of Indian commerce.
Playing catch-up to China
•Entering a phase where incomes will compound at a faster rate on higher base.
•Since 1991, India took 31 years to raise GDP to $3tn.
•Next $3tn. Should come within next 7 years.
•India’s GDP is where China’s was in 2007 – 15 year gap.
•China invested heavily in industry & infrastructure to grow GDP to $18tn.
•India’s working age population is yet growing with median age younger by 11 years to China’s.
•Over the next 10 years – India’s real GDP growth should average 6.5% vis-à-vis China at 3.6%
Market Impact
•Profits as a % age of GDP
•For 2021 – stands at 4.5%
•Digitization and Productivity gains should give it a further boost.
•Higher number will make Indian markets more attractive to international investors.
•To put this in perspective, this number stands at 12% for USA.
Market Capitalization as a % age of GDP
•High number without commensurate growth and profitability would indicate an expensive market.
•India currently is at 105 while USA is at 166.
•During market euphoria in 2008, India’s number exceeded 160.
•Over the next decade, India would be the only major economy growing relatively at a faster rate with increasing profitability.
•This should justify a higher number than the current 105.
First Amongst Equals
• Markets/Sectors/Stocks that show resilience during bear markets are the front runners in the next Bull market.
• Performance of major stock markets in CY 2022 – Year to Date
Crystal Ball Gazing – Year 2032
•Indian economy (3rd largest) – $8.5 trillion
•Market Cap to GDP multiple – 120%
•Market Cap of Indian Stocks – $10.2 trillion
•Nov 2022 Market Cap is $2.47 trillion. SENSEX is 61,500
•2032: SENSEX projected at 254,000
•Compounded Annual Growth Rate: 15.2% p.a.
“…a novel confluence of forces stands to transform India’s economy over the next decade, improving the lives of 1.4bn people and changing the balance of power in Asia…As the country emerges from the pandemic, however, a new pattern of growth is visible. It is unlike anything you have seen before…. These changes…help explain why India is forecast to be the world’s fastest-growing big economy in 2022 and why it has a chance of holding on to that title for years.” – The Economist, 13th May 2022
Milan Sangani
Milan is a veteran stock market investor and educator on equity investing. Connect with him on milsang@gmail.com
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