Celebrating India’s 77th Independence Day, we sat and reflected on how far India has come and why we are bullish on the Indian growth story. From surging ahead to become the world's 5th largest economy to witnessing exhilarating stock market performances, the country is demonstrating immense potential. India is the 3rd largest automobile market, 4th largest in solar power generation, 2nd largest mobile phone manufacturer, and a leader in many fields.
In the last 1 year, since the last independence day, Nifty gained7.9%, mid-cap and small-cap indices rallied 22.61% and 23.78%, respectively. Over 200 stocks have given multibagger returns during the period.
9 stocks gave over 500% return, such as - Andhra Cements, Taylormade Renewables, WSIndustries, Northern Spirits, Remedium Lifecare, K&R Rail Engineering etc.
57 stocks gave 200% to 500% returns, such as - Mazagon Dock Shipbuilders, Inox Wind Energy, RVNL, Jindal Saw, Jupiter Wagons, Apollo Micro Systems, Davangere Sugar Company, Ramkrishna Forgings, Mrs. Bectors Food Specialities, Kirloskar Brothers etc.
144 stocks gave up to 200% returns, such as - Force Motors, Karnataka Bank, Ircon International, Kalyan Jewellers, Welspun Enterprises, Ion Exchange, Texmaco Rail & Engineering, REC, Zensar Technologies, KPI Energy Green, RBL Bank, Sonata Software, KPIT Technologies etc.
India's Economic Surge Across Three Decades of Unprecedented Growth
Since liberalisation in 1991, India's GDP has soared from Rs 5.3 lakh-crore ($275 billion) to Rs 273 lakh-crore ($3.4 trillion) in FY23. During this period, we have suffered through many crises such as the 1997 Asian Crisis, the 2008 Sup-prime Financial Crisis and most recently the Covid-19 pandemic. The economy faced only a 3% decline during the pandemic and rebounded with 18.5% nominal growth in FY22. Many economists are forecasting an impressive growth rate of nearly 7-8% in Q1, RBI is expecting 6.5% and World Bank is projecting 6.3%. Continuing the 7.2% annual growth rate India displayed in FY23. In FY24 we are projected to hit 6.5% in real terms, after accounting for inflation of 4-5% the nominal growth could reach 11-12%. This would increase our GDP to nearly Rs. 303 cr by the end of this year and by FY25 we would hit Rs. 338 cr or $4.5 trillion.
If we factor the loss in GDP growth suffered due to Covid-19, then we are on track to hit $5 trillion by 2025/26. All of this even after the rupee has significantly depreciated since the $5 trillion goal was announced. The fluctuating value of the Indian rupee has consistently influenced India's GDP when measured in dollars. This is due to the significant trade deficit, which renders the currency vulnerable to changes in foreign currency inflows. However, the current situation in India presents several advantageous factors. These include strong investments, a well-capitalized banking system, and a record-breaking foreign exchange reserve of $602 billion. Additionally, the trade deficit has been alleviated by surpluses in services, amounting to $198 billion in the fiscal year 2023. Moreover, the proportion of GDP represented by oil imports has been progressively decreasing.
With all of this and more, we may even achieve $10 trillion, a lofty goal set by the government, by the end of this decade. India is already the 5th largest economy, and with this will become the 3rd largest economy. Over the last three decades, our economy has flourished in a way that only few could have predicted.
1. Investments in Infrastructure, Manufacturing & Technology
High supply chain costs were a bottleneck for Indian industries, but the government’s current investments in various sectors promise to address this. A significant portion comes from the private and household sectors, indicating confidence from the private industry and the public.
India's strengths in science and technology aren't just academic. From manufacturing COVID-19 vaccines to leading digital payments, India's technological prowess is globally recognized. Achievements in space technology and contributions to global tech innovation further cement its status as a technological powerhouse.
Volume of Investment: A $1 trillion+ annual investment signifies a massive push towards infrastructural and manufacturing growth. Gross Domestic Investment (or GCF - Gross Capital Formation), which consists of outlays on additions to the fixed assets of the economy plus net changes in the level of inventories, is at 31% of GDP in FY23 - indicating heavy capital inflow.
Rural vs. Urban Development: While urban areas remain less affected due to corruption and underinvestment, rural India's visible progress suggests a shift towards decentralization of development.
Tech sector growth: India's prominence in outsourcing and software services is evident, employing 5.5 million individuals. Forecasts predict more software engineers in India than the US by 2026, boosting software exports to nearly $200 billion.
Commerce and Industry Ministry's projection that India's merchandise and services exports will cross $2 trillion by 2030, up from $765 billion.
India's successful Free Trade Agreements with countries like Australia and the United Arab Emirates are not isolated achievements. They are strategic steps in fostering relationships that will define India's global trade policy. Such targeted FTAs will become even more crucial in a deglobalizing world, as they can counter protectionist trends and facilitate trade connections.
2. Funding Economic Growth
India's robust banking system, fortified by measures like recapitalization and regulatory reforms, supports the economy's expansion. Writing off NPAs to the tune of Rs 15.4 lakh-crore over the last decade and still maintaining stability demonstrates the robustness of India's banking system.
Tax Collection and Fiscal Management: Tax revenues surged from Rs 19.1 lakh-crore (FY18) to Rs 30.4 lakh-crore (FY23), despite pandemic setbacks, projected to reach Rs 33.6 lakh-crore (FY24). This buoyancy reduces government borrowing, gradually trimming the fiscal deficit from 5.4% to 4.5%. Yet, rising disputed taxes suggest reforms are needed for smoother tax dispute resolutions.
Cost of Capital: The reduction in capital cost by 150-200bp over 10 years makes investments more feasible and incentivizes businesses to undertake more projects. 10yr Government of India bonds are yielding 7.2%. Both of these has led to growth even in our bond markets.
Market Inflows: Recent heavy foreign portfolio investor (FPI) selling was offset by local inflows, stabilizing markets. Domestic capital flows are now counteracting the risk of overseas capital flight, leading to all-time high stock market valuations. These inflows are nearly Rs. 3 Lakh cr annually with insurance companies investing Rs. 7000cr pm, pension funds adding Rs. 20,000cr pm and SIPs giving Rs.15,000cr pm.
Digital tax system upgrades enhance compliance, expedite refunds, and promote tax filing ease. Low inflation and reduced capital costs stimulate corporate sector profitability and encourage investments. Equity inflows, technology dominance, and a burgeoning startup ecosystem further strengthen India's economic trajectory.
3. Demographic Dividend, Improving Socio-Economic Indicators & Creating Jobs
India's youthful population also sets it apart. While global counterparts grapple with aging populations and high dependency ratios, India's demographic dividend offers a unique advantage. The minimal rise in the dependency ratio from 47.5% in 2022 to 49.3% by 2050 is a stark contrast to nations like China and Japan.
With an average age of 29 and over 600 million people aged between 18 and 35, the demographic dividend is an engine of growth that's expected to persist until 2055-56.
The UN estimates that 24.3% of the global workforce's incremental growth over the next decade will come from India. This fills a crucial gap in the developed world, where an aging population poses significant challenges to labor supply.
The population dynamics ensure that India's growth story will continue for the next three decades. With a population that won't begin to decline for another four decades, India's economic activity is self-sustained, driven by the purchasing power of its own population.
Social indicators have also made remarkable strides nationwide. NFHS 5 data (2019-21) shows India with 1,020 females per 1,000 males, improved life expectancy, lowered infant and maternal mortality rates, a higher gender ratio at birth (935 females per 1,000 males), and reduced fertility (2.0).
By 2024, the projected basic amenities (such as shelter, clean water, electricity, sanitation etc.) for the average Indian indicate comprehensive development, touching on almost all aspects of daily life.
Educational access has expanded significantly, with India hosting one of the world's largest education systems. Over 265 million children are enrolled, and retention rates are rising, with 85+ students completing Class X and 65 completing Class XII out of every 100 entering Class I.
Higher education includes 1,200+ universities, 56,000+ colleges, and 43 million+ students. The Gross Enrollment Ratio (GER) for college in the 18-23 age group stands at 28, with women surpassing men since 2019. GER improvements are observed across all social groups. After establishing capacity at scale, India's focus now shifts to enhancing educational quality.
Poverty has notably declined across the nation, as per the latest NITI-Aayog study, with 14.9% of the population being multidimensionally poor compared to 24.8% in 2016. This reduction is largely attributed to the range of welfare initiatives launched by the NDA government.
EPFO records reveal over 1.5 crore new subscribers in FY23, with 52% aged 18-25, suggesting a majority are first-time jobholders. With at least 1 crore new formal sector jobs being generated annually. Interestingly, certain regions in the Auto industry sales also indicate robust employment increase, generating around 25 lakh jobs annually.
A Wave of Reforms
The Indian government hasn't merely capitalized on the global scenario but has actively laid the groundwork for sustained growth. Key reforms have marked this era:
GST Introduction: Streamlining the tax structure
Bankruptcy Law: Ensuring legal clarity
Lowering Corporate Taxes: Enhancing business attractiveness
Economic Formalization: Moving towards standardized practices
Labor Law Reforms: Providing industry flexibility
Infrastructure Focus: Building the backbone for growth
Production-Linked Incentives: Boosting domestic manufacturing
From inflation targeting to privatization, India is constructing a framework that invites both foreign and domestic investment. It's a build-and-they-will-come approach, and it seems to be working.
Why India could be leading in AI (Artificial Intelligence)?
According to Nasscom’s State of Data Science and AI Skills report, India hosts 16% of the world’s AI talent pool. Moreover, the country has one of the largest annual STEM (Science, Technology, Engineering, and Mathematics) supply lines, with 2.25 million graduates. This vast pool of potential talent places India in a strong position to meet the growing global demand for AI professionals.
Moreover, AI has also seen a dramatic increase in global demand, with the number of AI-focused job openings in India alone reaching 81,585 in the first quarter of FY24. By the end of FY 23-24, there are predictions of close to 150,000 new AI-related jobs. With Indian unicorns and top Information Technology companies reporting a fall in headcount in the first quarter of FY24, the surge in AI job opportunities presents a chance for tech talent to upskill and find new roles. While India’s local demand gap is relatively low, countries like the U.S., Germany, and Canada are witnessing significant shortages in AI talent.
India is also witnessing a significant push towards upskilling. Large IT services firms like TCS, Wipro, and HCLTech have comprehensive plans to train associates in AI and ML skills. Even technology giant NVIDIA is partnering with Indian institutions like IIT Bombay for AI training. Nasscom, in partnership with the Ministry of Electronics and Information Technology (MeitY), has created the FutureSkills Prime Platform, which offers AI-related courses and currently has over 1.4 million registered users. These training initiatives are aimed at bridging the 51% gap between the current demand and supply of AI professionals in India.
Geopolitical Tailwinds: India vs. China
The world's disenchantment with China and a shift towards diversification have placed India in a favorable position. The geopolitical scenario is now aiding India's rise, just as it did for Japan, Taiwan, South Korea, and China during different phases of global politics. The West's interest in India isn't merely economic; it's strategic. Let’s look at what’s been happening with China.
China has long been an economic powerhouse, with staggering growth and development that has captivated the world. However, recent trends and data point to a slowing momentum and potential challenges ahead.
In May, China’s youth unemployment hit a record high of 20.8% for those aged 16 to 24. This alarming rate not only reflects a significant societal issue but also points to underlying economic challenges.
The global business landscape is changing, and China is feeling the effects. An increasing number of supply chains are shifting away from China, driven by various factors including trade tensions, rising labor costs, and concerns over intellectual property rights.
Recent economic indicators show a potential cooling of China's economic engine. The country's factory activity in June marked another contraction, and non-manufacturing activity was at its weakest since the abandonment of the strict “zero-Covid” policy late last year.
Despite these challenges, some sectors show promise. Riedel has noted green shoots in certain consumer and travel industries emerging from Covid lockdowns. China's massive consumer market and ongoing urbanization process may continue to offer opportunities for economic expansion, even as traditional growth drivers weaken.
Geopolitical Dynamics and India's Strategic Position
India finds itself in a unique geopolitical position amidst rising tensions between the United States and China. The U.S., along with its European and Asian allies, sees India as a potential counterweight to China's influence. This is further accentuated by India's domestic strengths, including a young, fast-growing workforce, digitalization of its $3.5 trillion economy, and efforts to overcome historical challenges such as poor infrastructure.
India is also transitioning towards a low-carbon future, aligning with global shifts towards sustainable practices. However, India's alignment with the West is constrained by its historical ties to Russia, the complications of the China-India border conflict, and concerns over human rights issues within the country.
One major economic aspect of the current geopolitical climate is the “China plus one” strategy, where multinational companies are looking to diversify their manufacturing bases outside China. The U.S. is promoting this through “friendshoring,” encouraging supply chain development in friendly nations. India has already begun to attract significant investments from major companies like Taiwan's Foxconn, an essential Apple supplier. But the road to becoming a primary destination for foreign investment is fraught with challenges. Concerns over protectionism, allegations of government favoritism, high tariffs, and stiff competition from other developing nations like Vietnam mean that India must compete vigorously to secure substantial investment flows.
Even with all this, India’s military clout and geographical positioning make it a crucial player in global politics. Businesses, keen on diversifying their supply chains, are increasingly looking towards India, and the country is reaping the benefits.
Challenges & Path Ahead
Like any growing nation, India isn’t without its challenges. Essential structural reforms, particularly in the power sector, timely justice, red tape reduction, and corruption combat are required. The demographic dividend must be encashed with job creation and productivity enhancement. Women's participation in the workforce, expansion of the formal sector, and optimizing agriculture are crucial areas needing attention.
While India boasts vast education enrollment numbers, the next frontier lies in enhancing the quality of education to ensure it aligns with global standards.
In terms of unemployment, India's challenge isn't inadequate job availability, but rather low-paying positions, where 70% pay less than Rs 25,000 per month.
With a 60+ population of 130 million (8%+ of the total), projected to reach 200 million by 2030, policies must be designed to establish a social security net for the elderly, encompassing comprehensive pensions and elderly care.
Addressing the income disparity among states should be a priority to ensure balanced nationwide growth, such as Bihar's per-capita income being a mere 1/5th of Karnataka's.
India has positioned itself as the world's third-largest digital powerhouse, capitalizing on its pioneering efforts in public digital infrastructure, including Aadhaar and UPI. These foundations have enabled the digital and financial inclusion of our vast population, accompanied by innovations such as ONDC.
India has emphasized the export of its digital public infrastructure such as UPI. Notably, platforms like UPI have been promoted as inclusive and accessible solutions, aimed at catalyzing digital transformations in developing nations.
India's unique position as a leader in the digital revolution, coupled with its large population, makes it an essential player in the future AI-dominated era.
The startup environment, characterized by a large number of unicorns and massive investments, indicates a shift from traditional business models and suggests future economic diversification. Technology sector's profitability also contributes to India's flourishing tech innovation startup scene. With close to 100,000 startups and total investments of $140 billion, the ecosystem has generated 108 unicorns and $500 billion in value, set to grow to 250 unicorns and $1.5 trillion in value by 2026.
Bolstered by robust growth, significant investments, and infrastructure expansion, indicated by GST-driven consumption and a strong banking system, the nation is primed for progress. The confluence of increased formalization, job creation, enhanced productivity, reduced logistical expenses, and a matured tech ecosystem makes the present an opportune time for Indians to embrace a future brimming with optimism. Though India is already seen as a growth oasis, the potential to achieve even faster growth is on the horizon. With a possibility to break through the 8 to 10% GDP growth glass ceiling, India isn't just sustaining its growth but is poised to accelerate it.
Are you Bullish on New India?
We are bullish on the India Growth Story. We have been doing this for you for over 4 years, with 25,000+ investors and Rs. 300cr+ AUA (Assets Under Advisory). Our New India portfolio has been doing well. Here's the return performance (in % terms) of the New India Portfolio against its benchmark, Smallcap Index is -
Over a 3 year horizon, ₹1 Lac invested would have become -
Here are the key performance metrics of the New India Portfolio against its benchmark, the Smallcap Index -
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