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Indian economy and markets have seen significant growth in the last few years. This has also presented an opportunity to the global players to enter the Indian markets.
While speaking at the Cafemutual India Investment Summit 2024, Ajay Vora, EVP & Head – Listed Equities, Nuvama Asset Management discussed the growth story of the Indian markets and themes he is bullish about.
Here are the highlights of the session:
- While the developed markets have given a 9% CAGR in the last 10 years, emerging markets have given only 1% CAGR during this period, primarily due to weak performance of China. In comparison, Indian markets have given a 13% CAGR in 10 years
- This shows that even in a weaker performing region, if you invest in an economy which is performing well, it will continue to give superior returns
- Most of the developed markets will face headwinds due to an increase in interest rates.
- While a developed economy like US is expected to grow at 2%, India’s growth is expected to be at 6-7%. This shows that there will be significant alpha in terms of growth
- India is at 4% of global GDP and 5% of global market cap. If India continues to grow at around 10-12% nominal GDP growth rate, Indian markets will significantly outperform developed markets
- Indian markets have done very well despite high amount of FII outflows due to global headwinds or high interest rates
- With India’s earnings projected between 12-14% and ease of interest rates, one can expect a significant portion of inflows into the emerging markets to come to India
- The monthly inflow in mutual funds has increased manifold in the recent years from less than $1 billion to about $7-8 billion. This shows financialization of savings
- There are about 17 crore demat accounts and over 20 crore MF folios
- India’s individual equity portfolio allocation is at 4% compared to 30-40% in developed markets. India is at the cusp of a major inflection point
- With increase in domestic investment, FIIs will become less important to the market
- Besides mutual funds, alternate investments like AIF and PMS are also getting increasing traction
- Nifty EPS has grown at 12% CAGR since FY17 and is expected to grow at 14% CAGR in the next two years
- India is a thematic market and if you pick the right theme, the compounding can be at 60-70% CAGR. Themes like hotels and electronic manufacturing devices are examples of such growth.
- Job of money managers is to identify such themes and participate in their growth story
- Premiumization, globalization and transformation are the biggest themes
- Premiumization: Research shows that consumption of economies with per capita over $2,500-3,000 goes into multiple categories, which helps the premiumization. About 3 crore people in India are driving the consumption. This number can go to 12-13 crore in the next five years. Smaller or limited themes like athleisure, hotels, shoes, aviation are getting a lot of traction. Also, there is an increase in number of HNI and UHNI families
- Real estate prices have jumped about 50% in the last 3 years. Despite this, people are looking to buy bigger houses. This has led to significant liquidation of inventory. Inventory cycle has gone from four years to one year
- There is a lot of export opportunities. Sectors like Active Pharmaceutical Ingredient (API), auto ancillaries, textiles are getting good attention from global players
- Government spending in infrastructure and railways make these themes a long-term opportunity
- Emerging economies like Indonesia, Thailand or Vietnam have seen share of manufacturing in their GDP go up from 10-15% to about 20-22%. A similar trend can happen in India
- A jump of 4x in manufacturing is possible in India
- Roads, railways, airports and ports are seeing large investments in India
- Renewables have also been in focus with expectation of additional 300 GW to be added to the space to reach 500-550 GW in the next 5-7 years
- Wind, solar and hydro are seeing significant traction
Watch the complete session by visiting this link.