Why I am always a Bull in India

It is hard not to be bullish on India especially the markets with growing population and per capita income the growth potential that we have is immense with the world swimming in liquidity it is for us to grab these opportunities and use it for our economic growth.

With mostly the corona pandemic behind us we are looking at higher growth rates in the future. Though currently we are facing problems be it the unemployment issue, border issues with our neighbors, health infrastructure that is grossly inadequate. The only thing that can get us out of all these issues is higher economic growth, growth has been falling in the previous years with many blaming demonetization, hasty implementation of GST, higher real interest rates, bureaucracy, farm distress, adverse trade deficits. There is no point in going through these things as we have to look forward and solve these issues and aim for higher growth without too much inequality of wealth.

Though we have grown a lot since the last crisis, we have to grab this current opportunity. Since 2008 rupee has depreciated by almost 100% which gives us an idea as to what has been going on in the global economy though sensex has done well over the decade the dollar returns have been less because of the depreciating rupee.

Foreign Flows

 With unlimited printing of currency in the developed markets there is massive liquidity in the global system and mostly this liquidity ends up in speculative investments in stock markets around the world. Debt in the developed world was already high after the 2008 crisis it has simply grown to stratospheric levels, this will end badly and we may have the biggest bear markets of our life time. Governments are printing unlimited currency notes as if there are no side effects, high debt and low interest rates make a case for a bubble which will be very bad once it bursts. There have been some good things though because of the previous period of low interest rates – we have newer technologies, we would have never had uber, paytm if there were no private equities chasing it with unlimited amount of cash.

Reforms

 Reforms are needed by the government, government had put it on the backburner for all these years, but there is no choice but to implement now with falling revenues especially at the state government level. We will have massive reforms in the next one or two years as we have the strongest central government in three decades and it is nearing majority in the upper house and has already been able to push through contentious legislations.

India has been getting its act together as more than half of the new bank accounts opened in the world in the last few years are in India – though there is some population which is not covered by bank accounts we are getting close to having universal bank accounts. This has enabled Indian Government to directly transfer subsidies to millions of bank accounts without any leakages, also if we have to implement Universal Basic Income it is important that every individual has a bank account. Slowly amounts will be transferred to the accounts of the people who need subsidies and subsidies in other areas will be cut down. For example electricity for residents are subsidized by industries which has left them uncompetitive, also the state electricity boards have been passing their inefficiencies to the residents which will not continue for long because the government is in dire need of funds and cannot afford to subsidies inefficiencies. There is a politician who allegedly has 140 air conditioners installed in his house, his electricity bill is subsidized by the tax payers, so soon we can expect reforms in the power sector and the poor can be protected by transferring the  subsidy directly to their bank account and others paying market rates. Privatizing discoms will do a lot of good, there will be massive improvement in arresting distribution losses and we could have alternate forms of energy like solar rooftops which the government owned discoms are slow to implement.

Agriculture

I see huge scope in agriculture, we were not allowing our farmers to sell freely, with the easing of APMC restrictions and Essential Commodities Act we have taken the first step. Secondly telecom being almost universally available now at reasonable rates, ARPU’s in India are currently at Rs 130-150 which is affordable to most Indians now. Already India consumes the highest amount of data with average Indian consuming around 11-12 GB per month. We have seen instances wherein farmers have been able to sell to the societies directly thereby skipping the middlemen. Whatsapp and UPI means now farmers can connect to the buyer and receive payments seamlessly. UPI has been a huge boon as it has made transacting digitally almost free. There are lot of inefficiencies presently in the agricultural supply chain which will be exploited by entrepreneurs who can aid farmers through extensive use of technology. The commission which the middleman were making will now get squeezed thereby giving greater profits to farmers and reasonable prices to our consumers. The price difference of the fruits and vegetables in Bangalore and the nearby villages where these are grown gives me immense confidence that this space will be disrupted being a win-win for both our farmers and our consumers.

We are moving to an era of farm surpluses, the recent Kaleshwaram project in Telangana promises to irrigate a lot of land and this is seen through the recent harvest of the farmers there, lot of farm subsidies can get subsumed and the amount of Kisan Samman Nidhi Yojana can be gradually increased.

RCEP

Coming to The Regional Comprehensive Economic Partnership (RCEP), the government rightly withdrew from it, there are more disadvantages to India than the merits of joining it, we are already seeing it in the FTA’ signed with various countries where India is having massive trade deficits so joining this group at this moment does not make sense. India is not competitive in manufacturing and will stand to lose out big time with RCEP, our strength lies in the services sectors demonstrated by our engineers who have made India the back office capital of the world, will the RCEP countries open themselves to Indian engineers? We would just swarm them with our engineers – I am so bullish about the professional talent I see in our country be it the engineers or the doctors.

The fourth industrial revolution is underway and data is the new oil with our talent and with the right infrastructure we can surely beat the rest of the world. Our software exports were $1 billion 20 years back, now they are close to $150 billion. So it does not make sense to join any multilateral treaty based on just movement of goods. What we have to concentrate on is the trade with our neighbors especially with Bangladesh, we can leave out Pakistan at the moment as it still continues to trouble us. Bangladesh with 160 million population and growing at similar rates will be a huge growth market going forward, we currently enjoy favorable trade balances with Bangladesh, Nepal and Sri Lanka, we have to work on easing the restrictions on trade with these countries.

5G is coming

With Reliance Industries raising $16 billion dollars in a short time for Jio platforms I am confident now that 5G will not be a problem though we may be a year late . I was worried that we would be left behind with our telecom companies not in particularly good shape but with the recent amount of cash that has come into the sector I am confident that we should have 5G coming to India in the near future. There can be no smart cities without 5G, we cannot be left behind in this race.

Finalization of Savings

One thing that has been encouraging over the years in India has been the rising inflow of SIP’s into the mutual funds, this has helped in arresting the fall in the markets when foreigners are selling. With more than a billion dollars coming in every month it has to some extent been able to wean away Indians from investing in gold and real estate. With technology making investment simple and just a click of a button, again lot of middlemen here will get eliminated, commissions for life insurance agents will go down, already lot of brokerage houses have shut down in India and retail investors are getting the taste of discount brokerages. Zerodha the leading brokerage house has 1.5 million active investors on its platform most of them being millennials, I wouldn’t be surprised if this number increases 10 times and lot of startups are already eyeing this space. We also have a platform for the PSU companies to raise funds from bonds, it is very important that we have a bond market in India as most of the funding in India for large projects get financed through commercial banks which are not suited for such tenures, we need a robust bond market which is getting started along with various instruments like infra reits and reits which have listed on the stock markets.

These are some of the factors which will lead to strong growth for India, obviously there will be obstacles on the way that we have to keep dodging , but the returns far outweigh the risk. The easiest way to capture this is through investing in index funds, because if you stretch it over to 15 years you will always make money and nifty has been giving decent returns over a longer period tenure compared to other investments.