Stable governments translate into defining reforms that can alter trajectories of countries. The last decade of India has been characterised by a stable, majority government. On the big reforms that have shaped India, Nilesh Shah, Managing Director of Kotak Mahindra Asset Management Co Ltd, told Moneycontrol, “India is the only democratic country that is showing growth.. there are a few democratic countries that can claim to be the third largest economy; India shows that it is possible to grow within the constraints of a democracy.”
The decade from 2014-2024 has witnessed India undertake reforms such as the Insolvency and Bankruptcy Code and adopting an "India first" strategy. The decision to buy oil from Russia despite various sanctions imposed on Moscow due to the Ukraine war was a decision that India wouldn't have taken usually. It may be recalled that India had stopped buying crude oil from Iran in mid-2019, following sanctions on the country by the Trump administration. “ We have to be aware and protect our interests, rather than blindly copying people,” Shah added.
The JAM trinity
Citing the three key strengths of the Indian economy as talent, infrastructure and capital, Shah said: “Today, talent is staying back in India. Santanu Naryan of Adobe famously said that if he were growing up in the India of today he would have never left Hyderabad. Retention of talent is most important, talent and capital combined are creating wonders for Indian growth."
“In the digital world, India is way above many nations. In the digital ecosystem, India is the developed world. Other countries are looking at catching up with us.”
Citing the JAM trinity (Aadhaar, mobile phones and Jan Dhan accounts), Shah added that the combination of three has been a game-changer. “JAM removed leakages, there are no leakages, no intermediaries, which is a big achievement.”
As on August 2023, there were 50.09 crore Jan Dhan accounts in India as compared to 14.72 crore accounts in March 2015. India’s prudent fiscal policies during Covid pandemic and the Insolvency and Bankruptcy Code has ensured that defaulting promoters don’t take control of the companies have also contributed to India’s growth.
“Earlier, it was quite common to ask how many times has a business defaulted because that was a sign of wealth. Promoters got richer while their companies defaulted. Now with IBC regulations, there is fear that my company will be taken away. During Covid, India provided guarantees rather than throwing money. India is the only major economy in the world where debt-to-GDP ratio has come down between Lehman Brothers crisis and Covid,” Shah added.
Nilesh Shah's investment thesis
“At one time, MTNL had a larger market cap than Reliance Industries and over the years MTNL kept declining. If the government had sold off MTNL and invested that money into primary health and education, it would have benefited Indians. As a country if you don’t take the right decision, people pay a price,” Shah explains. On the dominant themes for investment in 2024 with the possibility of Modi-led government coming to power, the most prominent theme would be "China plus 1". “India faces huge competition from Vietnam, Mexico, they are doing better than us. We must capture this opportunity like we have done with mobile phones and toys. India has a large domestic market. On top of that if you start exporting, then you get economies of scale.”
“We believe companies in engineering, chemicals should become part of manufacturing boom. We will see many manufacturing companies do well out of India, supplying to the domestic market as well as export market,” Shah added.
Another theme that Shah is betting on is the IT sector. Artificial intelligence and generative AI is changing the face of IT, he said.
Below is the full conversation with Nilesh Shah.
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