“Kos Kos pe badle paani, char kos pe baani”. This popular aphorism – which translates to “the taste of water changes every kilometre and the language every few kilometres” – sums up the diversity of India like none other. By most accounts, there are more than 100 languages and thousands of dialects India speaks in. There is another language which India speaks and writes in.
One which has usage across states, across the length and breadth of our country. The language of economic development. While India always had an eye on economic development; today, through a synergy of long-term vision and speedy execution, India has become the cynosure of all eyes on the global economic landscape.
China and India
Recently, India overtook China on the population leaderboard to become the most populous country. This has naturally led to comparison of India’s journey with China’s. While India is taking a leaf out of China’s book through a resolute focus on manufacturing and infrastructure, unlike China, India’s holistic approach to infrastructure push will focus on People, Planet and Prosperity.
Unlike China, where the growth model has been state-driven and environmentally unsustainable, in India, one can expect the growth to be more inclusive – driven by entrepreneurship and with the government acting more as a facilitator. Vibrancy of Indian capital markets too makes India’s growth more inclusive.
In fact, in China, while the economy has witnessed a robust growth over the last three decades, MSCI China Index yielded paltry returns during the same period. On the other hand, in India, sustained economic growth has been matched by growth in corporate profitability and commensurate returns from equity markets.
A Better Parallel – US Of the 1980s
In fact, there is a better parallel that one can draw: The US of the 1980s. Firstly, in the 1980s, owing to the baby boomer effect, the US reaped the demographic dividend of a relatively young population. Secondly, one cannot look back at this period in US history without a mention of Reagan’s famous words, “Government has no business to be in business.”
Moderation of government spending, reduction of tax rates, deregulation, and lower government intervention in business formed the pillars of economic policy during this period. Thirdly, this period was also marked by Paul Volcker’s decisive actions to rein in runaway inflation and set the US firmly back on track for long term economic expansion.
Lastly, around the same time, the widespread rollout of 401(k) revolutionised the way Americans saved for retirement. This also ensured a huge supply of patient long-term capital, which also aided the massive innovation and growth in mutual funds, private equity, venture capital, high yielding bonds, securitisation, muni bonds, REITs, etc.
All of this led to the US enjoying a long period of NICE (Non-Inflationary Continuous Expansion), the fruits of which were enjoyed by investors in the long-run.
India’s Paradigm Shifts
Like the US of the 1980s, India has been reaping the demographic dividend of a large young population. Secondly, India is firmly treading on the path of “less government, more governance”. The privatisation of India’s national carrier Air India being a case in point.
Ease of doing business and simplification of laws have also been at the top of the government’s agenda. As per Union Budget 2023, Government has reduced more than 30,000 compliances and decriminalised over 3000 legal provisions to enhance the ease of doing business.
Introduction of regulations like GST, IBC, RERA etc has also proven to be a big success. Thirdly, like the US Federal Reserve of the 1980s, the Reserve Bank of India (RBI) has adopted inflation targeting under the Monetary Policy Framework. Lastly, just like 401(k) triggered a culture of long-term investment in American investors; in the Indian context, increasing acceptability of SIPs (Systematic Investment Plans) has laid the foundation for disciplined long-term approach to investing.
Goes without saying that one of the key ingredients to reap a rich demographic dividend happens to be efficient allocation of capital/robustness of a country’s capital markets. Over the years, Indian capital markets have certainly come a long way.
From a dozen-odd brokers trading under a banyan tree over a century ago to becoming the fifth most valued stock market in the world, Indian capital markets have traversed quite a journey. More importantly, Indian equity markets have steadily built a credibility of being one of the most transparent, sophisticated and digitally evolved markets in the world.
Beyond the comparison with the US of the 1980s, India has quite a few tailwinds which can propel it in the right direction: India’s trailblazing adoption of technology being one such factor.
Over the years, India’s education system has not been able to match up to the standards of our more developed peers. Wider digital adoption could provide the panacea to this challenge by bringing the world of knowledge to the fingertips of masses making our education system much more inclusive.
In fact, unlike other economic success stories, the unique aspect of India’s growth is its emphasis on inclusive development. Success of schemes like JAM trinity (Jan Dhan Account, Aadhar, Mobile Number), which facilitates direct benefits transfer of welfare subsidies into bank accounts of the needy, being a case in point.
Why I Am Bullish On India
While there are numerous reasons why one can be optimistic about India, there are three key reasons why I am bullish as a long-term investor.
Firstly, India’s macroeconomic stability makes it much more resilient compared to other peers. Strong macroeconomic fundamentals, pro-business environment and sustained structural reforms hold India in good stead. What’s equally noteworthy is that India’s growth journey has a long runway ahead given the low starting base in terms of per capita GDP.
Secondly, India has a large number of companies with a wide array of businesses catering to a diverse set of customers. This presents a diverse set of opportunities in terms of stock selection – something which cannot be paralleled by most peers. With high quality management, strong corporate governance, emphasis on capital efficiency, robust regulatory framework and wide array of investment avenues, Indian equity market can live up to its billing of being a “stock pickers paradise”.
Thirdly, sustained domestic liquidity now makes Indian markets relatively less susceptible to volatility associated with foreign capital flows. While foreign capital will continue to hit Indian shores owing to India’s relative attractiveness to foreign investors, robust domestic flows from DIIs can help to provide counterbalancing stability.
While the 19th century belonged to Europe and the 20th century to the US, the 21st century is often called the “Asian Century”. Not only is the axis of political power shifting from the West to the East, even the winds of growth have started blowing eastwards and India is understandably expected to be the shining star in this new global landscape.
In the near term, a gale or two could keep us on our toes. It is difficult to predict markets in the short term, more so given the current global macro backdrop. However, in the long run, the winds of opportunity are well and truly blowing in India’s direction and long-term investors would do well to set their sails firmly in the direction of “Destination India”.
Navneet Munot is Managing Director and Chief Executive Officer of HDFC Asset Management Company Limited. Views are personal, and do not represent the stand of this publication.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
