Sometimes you have to disconnect to stay connected – Ajay Khandelwal
The next significant driver is Nuclearization. Contrary to popular perception, nuclear families in rural areas are increasing. It jumped 29% versus 9% in urban household in FY18. Nuclearization itself is expected to add Rs 7 million households per year.In terms of economic contribution, urban population contributes 60% of India’s GDP and the contribution is expected to increase to 75% by 2030.
Another important driver is the addition of youngsters to job market. India is adding 12mn youngsters to job market every year and in next 15 years 375 million Indians will reach the 25+ age group to enforce the Indian workforce.
All these factors will drive demand for consumption.
We have significant under penetration in housing – India’s mortgage as a percentage of nominal GDP is only 10%. The same for China is 22%. By 2026, India’s mortgage to GDP is expected to increase to more than 25%.
Housing sector demand is expected to grow by 18-20% for next 5 years. Total housing credit outstanding is ~INR 17trillion as of FY18, which is estimated to touch INR 40 trillion by FY23. So there is significant room for growth.
India has the ecosystem to deliver. China’s growth story was built on their manufacturing capabilities. Our economic journey is primarily technology driven. We have proven that by scaling quickly to reach to wide masses. Around 90% of population is Aadhar enrolled. We have 122 crores bank accounts as on end-March 2018, up from 73.49 crores as on end-March 2010.
This has led to significant improvement in customer acquisition cost and turnaround time for financial institutions. This also allows them to offer new products based on customer’s future requirements.
More and more users are adopting digital medium and hence the limitations of physical reach is reducing. We are second largest smartphone market (ahead of US and just behind China). Mobile broadband penetration is 30%. This should improve further to strengthen digital ecosystem.
All Industries are profiting because of our IT capabilities. Just to put things in perspective, Information technology industry contributes 7.7% of India’s GDP, while the U.S. compares at 5.5% of GDP.
All these drivers would make India fifth largest consumer durables market in the world by 2025 from its 12th position currently. It will make India fourth largest automobiles producer globally by 2020 after China, USA and Japan / third largest in the world by 2025.
Investors will have to be cognizant of few risks such as oil price, exchange rate, inflation, commodity prices etc. They impact profitability in near term and could lead to sharp price corrections. Last year was marred with unexpected events that took place in quick succession.
That resulted in Half of Sensex stocks, Two third of Midcap and Three Fourth of Small cap stocks ended in negative in 2018-19.
It is time to follow the golden rule of Mr. Buffett: “Be fearful when others are greedy and greedy when others are fearful “. If we as investors don’t flip during such times then great rewards can be reaped.
After all Diamond is a piece of coal that doesn’t crack under pressure and stuck to the job.