As India celebrates its 75th year of Independence, it’s time for us to realise how things are going to unravel within the next generation and how much money is waiting to be made by those who bet big on India. At $3 trillion, India is now the fifth largest economy. Even at a measly 6% annualized growth rate, we would grow to become over a $12.5 trillion economy in the next 25 years. This will easily make us the third largest economy and with a population of roughly 1.6-1.7 billion people, it means a per capita income of over $7500.
Now here’s a thing- once we reach an economy of that size, our population will grow much richer in absolute number than what the average suggests. This means our population will have much higher disposable income to consume and to invest ! Let’s see what it means!
Assuming an average saving rate of 20%, it means an average of $2 trillion waiting to be invested, be it in property, gold or in stocks! Even if 25% of that money is brought into stocks, that’s over $500 Billion to be invested, and this is only domestic flows! Compare that with the total size of the Indian domestic mutual fund industry today which is roughly $475 Billion! Now that’s serious money which is likely to propel all the associated players- brokers, exchanges, asset management companies, etc to levels few can imagine currently. If you think it’s all hyperbole, just check the annual revenues of Stock Exchanges such as NASDAQ, NYSE, LSE etc over the past 15 years and you’ll see what I’m talking about. There’s a reason all of these companies are valued north of $50 B in most cases because with growing revenues, comes the operating leverage as costs are fixed and margins rise significantly. This means the stock prices are likely to grow exponentially.
Similarly for our asset management companies, most of which are languishing at 52 week lows because there is rising competition and sales growth is flat. Well, once the pie rises, even a lower absolute portion of a much bigger cake will ensure that they’ll generate significantly higher sales and profits. It’s a no brainer for an HDFC AMC operating with almost 75% plus margins, in a world where a sustained 20% margin makes you a long.
The brokers, also working as Investment bankers will have a fantastic period too for companies will get bigger and better, resulting in even higher M&A fees, bigger IPOs and of course much bigger volumes means higher fees. Why am I so confident? Well, just read about the period beginning 1982 in the US and you’ll realise we are going to live through a similar phase in our markets when more savings make their way to the markets, resulting in a sustained bull market which is going to create unimaginable wealth for those on the right side of this tide.
One more thing which is a harbinger of things to come is that the government pension fund, EPFO is likely to approve investing of an even higher portion of its cumulative savings in stocks. This alone can generate flows to the tune of hundreds of Billion dollars along with the NPS. This happened in the US in the 1980s and created a sustained flow to the markets.
Now let’s come to the consumption part of the story. As Indians get richer, we’ll consume better, buy better clothes, shoes, cars and what not. Just remember, McDonald’s has been a hundred bagger even from the 1980s and so has been Walmart and Costco! Most global companies such as Unilever, P&G, Diageo hardly had a billion dollar valuations in the 1980s are now valued at North of $100 billion easily. So the opportunity ahead of us in terms of our HULs, United Spirits, Dabur or even the ones selling cars etc is massive! It doesn’t matter if you like Tata or Mahindra, if it keeps selling a better product, it’s going to grow enormously.
One reason I’m exceptionally bullish on TaMo is because it’s selling an aspirational product to the masses. I want to buy a Jaguar or a Land Rover once I become rich and so do most of you. Once India grows richer, just imagine the kind of luxury cars it’s going to consume. Don’t believe me? Just see how China has grown to become the largest consumer of every possible luxury item – Chanel bags, Blue Label Whiskey, Teslas and Land Rovers and what not, in a matter of a decade. This is exactly what we’ll experience in India over the next ten-15-25 years.
Just see what Reliance is doing. It’s bringing in every available luxury brand to sell through itself in India because it knows how soon Indian women will not just be content with just Hidesign and Lakme and how Indian men will need just more than Arrow and Nike. So be it a Nykaa or a Dmart, an HUL or a Titan, this part of the market is going to grow exponentially from here and this is why they’re valued at what they’re valued at currently. I for none will suggest go buy a Nykaa or a Zomato but the larger point is that everything and anything which is going to cater to the enormous wave of money Indians will go shopping with is going to grow big.
It’s almost unbelievable that the second biggest exchange in India is selling for hardly a Billion dollar market cap, the largest investment bank cum broker is selling for less than 12 times trailing earnings and the largest retailer and the largest telecom player is selling for 25 times earnings! This is an opportunity of a generation. Bet big on India, इंडिया का टाइम आ गया है।
Life is all about Compounding! 