The domestic market is in correction mode after hitting the much-awaited 10,000 mark on the Nifty. The Indian market has been on roll over the past couple of quarters on the back of the ongoing reforms taken up by the Modi regime, good monsoon and positive global sentiments. It was a broadbased rally driven by fundamentals and the market has created wealth for investors across segments – be it largecap, midcap or smallcap.
So is there life after 10k? Is the Indian market still worth investing at these levels? Is Indian market still a venue for wealth creation? Let’s discuss it in details. The Indian economy has witnessed a flurry of economic reforms over the past few years. These reforms are disruptive in nature and transformational in character. These reforms would have structural impact on the economy and can help accelerate the expansion in future.
Buoyed by the success of these reforms and increasing political clout, the government is in a position to take few more bitter pills, which could further improve the health of the economy in the days to come and prepare it for a long haul with superior delivery performance. India is an emerging market with GDP slightly upwards of $2 trillion in 2017.
India’s GDP was at $541 billion in 2003, crossed $1 trillion in 2007 and $2 trillion in 2015.
The Indian economy has almost doubled between 2003 and 2007. It took four years for India’s GDP to double from $0.5 trillion to $1 trillion between 2003 and 2007 in the backdrop of better global environment; and eight years from $1 trillion to $2 trillion between 2007 and 2015 despite deteriorating global fundamentals.
In the backdrop of these facts, it is expected that India’s GDP would reach $5 trillion by 2025. Economic reforms put to use over the past couple of years would probably hasten this expansion.
Now, let us look at the equity market performance in the interim period. The market rally between 2003 and 2007 took the Sensex from 5,000 to upwards of 21,000 and the Nifty trading from around 1,000 to 6,000 by the end of 2007. The market created wealth for all participants — retail investors, domestic and foreign institutions. This simply shows that the market reflects the underlying growth in the economy.
Are we at a similar inflection point? Undoubtedly YES!!
Now, let us deliberate on the factors influencing economic growth. India is basically a domestic economy – only 25 per cent of the GDP is driven by exports. It houses approximately 1.25 billion people (second largest population in the world) with per capita income growing at 5.7 per cent over the past 10 years. Thus, India is a great consumption destination. Demographic dividends are favouring India as 65 per cent of the population is in the working group range of 15-64 years, 29 per cent of the population is in the range on 0-15 years and only 6 per cent above 64 years of age.
Over the next 2-3 decades, the demographic dividend is expected to favour India. India is at the same sweet spot where the US was in 1980s and China in 1990s. With this demographic dividend, national productivity is going to be very high, the dependency ratio is relatively low and the women in the society are also contributing to the workforce.
A high proportion of young population means higher productivity, more risk-taking ability and higher expenditure compared with savings, thus driving demand, leading to higher consumption and hence higher demand. And this virtuous circle continues.
The domestic consumption industry is very large. India has nearly 70 crore rural population, which is almost equivalent to the size of entire Europe, which houses around 74 crore people. The young Indian consumer class comprises 50 crore people, which is higher than the combined population of Brazil, Russia, Germany and the UK, while the middle class accounts for 35 crore consumers, which is higher than the size of the US population. The potential consumption market is pretty large in size.
India has a relatively poor infrastructure compared with developed nations. There is wide disparity between the infrastructure we have and the developed nations like the US, the UK, and other West European nations. We have ample scope to build all-weather roads, highways, bridges, waterways and seaways, airports and sea ports and mass rapid transit system. There is great opportunity for building new smart cities, which would be equipped with all the required amenities for quality life within the reach for all and sundry.
Indian workforce is well placed to capture global opportunities. Having an English speaking, well-educated generation, the Indian workforce has the capability to tap opportunities in the global IT sector. Homegrown and Indian MNC software companies’ exports have cornered a niche in global IT industry. The Indian industry has reached a new peak wherein engineering, auto and auto ancillary, pharma, textiles and leather goods companies are seen having good receptivity in the global market. A stable currency backed by robust macro-economic fundamentals and political stability is seen as another positive for these export-oriented industries.
At this juncture, the domestic economy is poised to benefit from both domestic consumption and global demand, thus playing on both the levers of growth, though in differential proportion. This creates good visibility of growth opportunity for the industries operating in these spheres of business. Hence, the economy and markets have a great future ahead and the 10,000 mark on the Nifty is just a number in the journey!